Bharti Unit's Merger With Indus to Birth $14.6 Billion Giant

(Bloomberg) -- Bharti Airtel Ltd. agreed to merge a unit with closely held Indus Towers Ltd. in a deal that creates a $14.6 billion telecom tower operator that would be the largest outside China.

The combination with Bharti Infratel Ltd. creates an entity controlling more than 163,000 towers across India, Airtel said in a statement Wednesday. Infratel said it agreed to pay 1,565 of its own shares for each Indus Tower share. In a separate filing, Airtel said it will “engage with potential investors for evaluating a strategic stake sale” in the new entity.

Backed by billionaire Sunil Mittal, Bharti Airtel is India’s largest mobile phone service and has been locked in a vicious price war that has led to eight straight quarters of declining earnings. The deal may give Indus greater bargaining leverage with customers as a price war erodes profit of wireless operators and prompts consolidation, including the planned merger of Idea Cellular Ltd. and Vodafone Group Plc’s India units.

“The Indus deal is win-win for all,” said Chakri Lokapriya, who helps oversee $3 billion as managing director at TCG Asset Management. “Indus can increase its rental margins, and for Bharti Airtel and Vodafone/Idea it would improve call quality and coverage area.” He also said Bharti Infratel’s cash outflow is lower than expected for the transaction.

Bharti Unit's Merger With Indus to Birth $14.6 Billion Giant

Vodafone Group’s local business, which owned a 42 percent stake in Indus, will receive 783.1 million shares in the combined company, valuing the U.K.-based company’s stake at $4.3 billion, according to the statement. The merged entity will keep the Indus name and be listed on Indian stock exchanges.

Bharti Airtel shares rose as much as 5.2 percent in Mumbai before closing 3.34 percent higher at 419.80 rupees. Idea gained 0.4 percent, while Bharti Infratel fell 1.08 percent. S&P BSE Sensex declined 0.3 percent.

Under the deal, Idea has the option to sell its current 11.15 percent stake in Indus for cash at the merger ratio that values the stake at $1 billion. It may instead retain a 7.1 percent shareholding in the combined tower firm. Providence Equity Partners Inc., a private equity investor with a 4.85 percent stake in Indus, also has the option to sell part of its stake or retain 3.1 percent in the new entity.

Post-Merger Holdings

Shareholding (in %)Scenario 1 (Idea exits, Providence chooses partial exit)Scenario 2 (Idea and Providence retain stakes)
Bharti Airtel37.233.8
Vodafone29.426.7
Idea07.1
Providence1.13.1
Public32.329.3

Source: Company statement

Tower tenancies for Bharti Infratel had been falling as wireless operators merge or exit amid intensifying price competition.

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