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Bharti Infratel announces merger with Indus Towers

This merger would create a Pan-India tower company with a network of over 1.63 lakh towers, the largest non-Chinese tower company in the world
Bharti Infratel has announced that they will be merging with Indus Towers to create the largest non-Chinese tower company in the world with a network of over 1.63 lakh towers. The newly created entity would be called as Indus Towers. The merger ratio for the deal has been set at 1,565 shares of Bharti Infratel for 1 share of Indus Towers. This values Indus Towers at an enterprise value of Rs71,500cr or 9.3xTTM EV/EBITDA.

As per the transaction value, the equity value of the new company stands at Rs96,500cr. The pricing of the equity, as per SEBI guidelines as on April 23, 2018 stands at Rs363 per share. The deal is expected to be concluded by March 31, 2019 owing to pending approvals from CCI, SEBI, NCLT, DoT (FDI approval).

Options for existing shareholders
At present, Indus Towers is currently owned by Bharti Infratel (42%), Vodafone Plc (42%), Idea Cellular (11.15%) and by private equity investor Providence (4.85%).

• Idea Cellular – sells its stake for a consideration of ~Rs6,500cr or receives shares in the new entity as per the merger ratio
• Vodafone – would receive 78.3cr shares in exchange for its 42% stake. If both Idea and Providence choose to sell their stakes, this would keep Vodafone’s holding at 29.4% in the combined company
• Providence – would be able to sell 3.35% of its 4.85% shareholding for cash or receive shares in the new entity as per the merger ratio

Benefits of the deal
The deal is likely to benefit the newly created entity in the form of (a) benefits of scale for future capex activities, (b) simplification of the organisational structure, and (c) general and administrative cost efficiencies. While the management has not quantified the benefits from the merger, they have stated that a merger would help reduce payment of dividend distribution tax by an amount of ~Rs560cr. Thus, long term investors would benefit by receiving higher dividend distributions.