Voda Deal may Re­quire Bir­las to Pump .₹ 25,150 Cr Into Idea

AB Group has to raise stake to en­sure equal rights with UK co in new telco

The Economic Times - - Front Page -

Kalyan Par­bat & Dev­ina Sen­gupta

Kolkata | Mum­bai: The Aditya Birla Group needs to pump in cash to raise its stake in Idea Cel­lu­lar or the com­bined en­tity to have equal rights in a tele­com joint ven­ture with UK’s Voda­fone Group, an­a­lysts said, adding that the In­dian con­glom­er­ate may have to shell out around $3.5 bil­lion (.`25,150 crore) for a struc­ture that could see the two hold 37.5% each. They add that another op­tion is for a strate­gic in­vestor to buy a por­tion of the UK tele­com ma­jor’s stake to re­duce it to match the Birla group’s hold­ing.

Mean­while, par­al­lel talks are be­lieved to be on for ma­jor share­holder Ax­i­ata to re­duce its hold­ings from about 20% in Idea in favour of the In­dian group be­fore any merger, a per­son fa­mil­iar with the mat­ter said.

Ex­clud­ing its 42% stake in In­dus Tow­ers, Voda­fone In­dia, the coun­try’s No. 2 telco, is val­ued at close to .₹ 50,000 crore, as per an­a­lysts, 1.2-1.3 times the third-ranked Idea’s mar­ket cap, which was over .₹ 39,000 crore at close of trade Fe­bru­ary 3. The Birla group owns roughly 42% of Idea Cel­lu­lar. The Voda­fone Group is a 100% owner of its In­dian unit. Bro­ker­age HSBC ex­pects “Voda­fone Group Plc and Idea’s pro­moter Aditya Birla Group will end up with 37.5% each” in the merged en­tity, while an­a­lysts at Credit Suisse peg their ini­tial re­spec­tive share­hold­ings at 39% each, both on the as­sump­tion that the Bir­las will in­fuse size­able eq­uity cap­i­tal in the com­bined en­tity to level its stake with Voda­fone’s.

Bro­ker­age Credit Suisse es­ti­mates that the Birla group’s req­ui­site eq­uity in­fu­sion into the Voda­fone-Idea merged en­tity could range be­tween “$2.39 bil­lion and $3.72 bil­lion, de­pend­ing on Idea’s stock price”.

SURG­ING STOCK

The Aditya Birla Group though faces a Catch-22 sit­u­a­tion, in that the more its stock price jumps amid on­go­ing merger talks, the more it would need to cough up to en­sure share­hold­ing par­ity with Voda­fone. In a lit­tle over two weeks, the Idea scrip has shot up nearly 62% from .₹ 67.5 (on Jan­uary 18) to .₹ 109.20 on BSE on Fe­bru­ary 3.

At .₹ 77 per share for Idea, the Birla Group would need to put in nearly $2.4 bil- lion to keep its stake at 39%; at .₹ 100, $3.1 bil­lion; at .₹ 110, $3.4 bil­lion; and at .₹ 120, $3.72 bil­lion, ac­cord­ing to Credit Suisse es­ti­mates. It added that the high eq­uity in­fu­sion may lead to some ques­tion­ing of “the deal logic from the group’s per­spec­tive”.

Idea’s mi­nor­ity share­hold­ers, in­clud­ing Malaysia’s Ax­i­ata, an­a­lysts said, would own the re­main­ing stake. In case of an ini­tial struc­ture of 39% each, Voda­fone and Aditya Birla Group would need to bring it down to 37.5% each to con­form to rules which re­quire mi­nor­ity share­hold­ers in a listed en­tity to hold a min­i­mum 25%. As per the share­hold­ers’ pact, Ax­i­ata has the right to keep its hold­ing at around the cur­rent lev­els, in case of an is­sue of shares by the In­dian telco. A Voda­fone Group Plc spokesman said the com­pany “has noth­ing fur­ther to say at this stage” (be­yond the Jan­uary 30 an­nounce­ment), and would not be com­ment­ing to ET’s queries.

STRATE­GIC IN­VESTOR

In­dus­try in­sid­ers added that a strate­gic in­vestor op­tion could also be on the ta­ble to bridge the val­u­a­tion gap with Voda­fone, which has more users and rev­enue than Idea, which is more ef­fi­ciently run and has been grow­ing faster. An in­dus­try ex­ec­u­tive added that the ad­vent of a strate­gic in­vestor would make it eas­ier for the UK com­pany to jus­tify its equal rights merger strat­egy to share­hold­ers, de­spite be­ing the larger en­tity. An­a­lysts at HSBC sug­gest that another pos­si­ble so­lu­tion could be Voda­fone pick­ing up a higher stake but agree­ing to let the Birla group have equal con­trol over the merged op­er­a­tion.

ARINDAM

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