Industrialist Anil Ambani-led Reliance Communications on Monday announced a definitive agreement for the merger of Sistema Shyam Teleservices into its fold in a unique stock-cum-spectrum fee payment deal, triggering a major consolidation in India's telecom space.
"As result of the demerger, Sistema Shyam Teleservices will acquire and hold a 10 percent stake in Reliance Communications. In addition, Reliance Communications will assume the liability to pay the Department of Telecom installments for Sistema Shyam's spectrum, amounting to Rs.392 crore per annum for the next 10 years," the company said in a statement.
The deal, which was approved by the two companies here on Monday, also includes the acquisition of the "MTS" brand.
Sistema Shyam Teleservices is an arm of Sistema -- a publicly-traded, diversified holding company in Russia and the region that invests in companies across the globe in areas such as telecommunications, high technology, radars and aerospace, banking, retail, mass-media, tourism and healthcare services.
For Reliance, the deal means an addition of 9 million customers and around Rs.1,500 crore in annual revenues, apart from the valued telecom airwaves or spectrum in the 800 MHz and 850 MHz band that is ideally suited for 4G services to complement its own unique nationwide footprint of minimum 5 MHz of contiguous spectrum in this band aggregating 148.75 MHz.
This will also extend the validity of Reliance Communications spectrum in the 800 MHz and 850 MHz band in eight important circles by a period of 12 years from 2021 till 2033 -- Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, Uttar Pradesh-West, and West Bengal.
The development must also be read against the backdrop of chairman Anil Ambani's recent announcement that his company will partner with elder brother, Mukesh Ambani-controlled Reliance Jio to offer each other's subscribers seamless reciprocal access to three generations of data and voice telephony in the country.
Reliance Jio had entered into an agreement with Reliance Communications for sharing the latter's extensive inter-city as well as intra-city infrastructure of nearly 520,000 km of optic fiber pairs, besides some 45,000 towers. The aggregate value of the deal was pegged at Rs.12,000 crore (nearly $6 billion).
"The combination of our wireless businesses, through the demerger of Sistema Shyam Teleservices wireless business into RCOM for stock consideration, will generate significant capex (capital expenditure) and opex (operational expenditure) synergies for mutual benefit," said Gurdeep Singh, president and chief executive for consumer business with Reliance Communications, reacting to Monday's deal.
"The merger is a milestone event. Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry," added Mikhail Shamolin, president and chief executive of Sistema.
The closing of the transaction, expected in the second quarter of 2016, is subject to applicable corporate, regulatory and other approvals. Post-closing, minority investors of Sistema Shyam Teleservices will be given an option to exchange their shares with the pro-rata Reliance Communications shares held by the demerged company.
Founded by legendary industrialist Dhirubhai Ambani, Reliance Communications is the flagship company of the Reliance Group, led by his younger son Anil Ambani. The Group currently places its net worth in excess $15 billion, cash flows of $1.7 billion and total net profit of over $800 million.
Reliance Communications has a customer base of over 118 million -- including 2.6 million individual overseas retail customers, over 39,000 Indian and multinational corporate clients in the large, small and medium enterprises space and over 290 global, regional and domestic carriers.
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