Proposed merger: Bharti Infratel, Indus to be world no. 2

New Delhi | Published: April 26, 2018 5:22 AM

Bharti Infratel and Indus Towers on Wednesday agreed to merge in a deal that will create a firm with an equity value of Rs 96,500 crore ($14.6 billion). The combined entity will have the world’s second-largest number of mobile masts and in its fold more than 163,000 towers across 22 circles India — the largest after China Tower. Bharti Airtel and Vodafone will jointly control the merged entity, which will have an enterprise value of Rs 71,500 crore, the two companies said.
The combined entity will be called Indus Towers and will continue to be listed on the Indian bourses.
Bharti Airtel separately said it plans to engage with potential investors to evaluate a stake sale in the combined company.
Bharti Airtel, which currently owns 53.5% in Bharti Infratel, will get 33.8-37.2% stake in the combined entity, as its shareholding is dependent upon what Aditya Birla Group’s Idea and private equity firm Providence do with their minority shareholding in Indus Tower. Vodafone India will get between 26.7% and 29.4% of the merged entity.
The merger will help unlock value for the companies which are locked in a tariff war unleashed by Reliance Jio Infocomm that has hurt earnings and triggered consolidation in the sector. Vodafone and Idea Cellular are already in the final stages to merge their mobile operations.
Currently, Vodafone has a 42% stake in Indus Tower. Bharti Infratel too has an equivalent stake while the remaining is with Idea (11.15%) and Providence (4.85%).
Under the deal, Idea has the option to sell its 11.15% stake in Indus for cash at the merger ratio that values the stake at Rs 6,500 crore ($1 billion). Bharti Infratel agreed to pay 1,565 of its own shares for each Indus Tower share. Vodafone India will receive 783.1 million shares in the combined company, valuing the UK-based firm’s stake at Rs 28,400 crore ($4.3 billion). “On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4% shareholding in the combined company. The transaction values Vodafone’s shareholding at Rs 28,400 crore or $4.3 billion,” a joint statement said.
Analysts expect Bharti Infratel to save dividend distribution tax, while Idea will be able to deleverage its balance sheet if it decides to sell its stake for cash. According to BNP Paribas, Indus Towers pays around Rs 500 crore annually as dividend distribution tax on which Bharti Infratel cannot claim credit currently as its owns only 42% stake in Indus. This credit will become available post-merger.
“Idea-Vodafone merged company can get Rs 6,500 crore cash from sale of its 11.15% stake in Indus; in view of its high leverage, we believe Idea could opt to take the cash option. Vodafone India will now have a stake in a listed company (Bharti Infratel) instead of Indus (unlisted),” the brokerage added.
Sources said that once Indus Towers becomes a wholly-owned subsidiary of Bharti Infratel, in the next stage PE funds consortium led by KKR with Canada Pension Plan Investment Board and GIC Singapore could acquire controlling stake in Bharti Infratel and also have management control. At that stage Bharti will exit Infratel.

Presently, Indus operates in 15 circles and Bharti Infratel in seven. The combined entity will also have 3.67 lakh tenancies and a tenancy ratio of 2.25.

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