Bharti Infratel, Indus merge to form $14.6-bn tower firm

Entity to be world’s second largest with more than 163,000 towers across India

Bharti Infratel and Indus Towers on Wednesday agreed to merge in a deal that will create a $14.6 billion firm with world's second-largest number of mobile masts.

The merged entity will have in its fold more than 163,000 towers across India - largest after China Tower.

Bharti Airtel and Vodafone will jointly control the combined firm, the two companies said.

The transaction is subject to regulatory and other approvals, including from Competition Commission of India (CCI), Securities and Exchange Board of India (Sebi), National Company Law Tribunal (NCLT), Department of Telecom (FDI approval), and is expected to close before the end of the fiscal year.

"Indus Towers will be merged with and into Bharti Infratel through a scheme of arrangement," Bharti said in a statement.

The merged entity, which will be called Indus Towers, will remain listed. Bharti Airtel, which currently owns 53.5 per cent in Bharti Infratel, will get 33.8 per cent to 37.2 per cent stake in the combined entity.

Its shareholding is dependent upon what Aditya Birla Group's Idea and Providence do with their minority shareholding in Indus Tower.

Vodafone India will get between 26.7 per cent and 29.4 per cent of the

Indus-Bharti Infratel combine.

Vodafone has 42 per cent stake in Indus Tower. Bharti Infratel too has an equivalent stake while the remaining is with Aditya Birla's Idea (11.15 per cent) and Providence (4.85 per cent). The merger will help unlock value for the companies which are locked in a tariff war unleashed by newcomer Reliance Jio Infocomm that has hurt earnings and triggered consolidation in the sector.

Bharti Airtel said it plans to engage with potential investors to evaluate a stake sale in the combined tower company, which will have an equity value of Rs 96,500 crore ($14.5

billion). Under the deal, Idea has the option to sell its 11.15 per cent stake in Indus for cash at the merger ratio that values the stake at Rs 6,500 crore ($1 billion). Under the deal, 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).

If Idea decides to sell all of its stake and Providence sells 3.35 per cent of its 4.85 per cent shareholding, the new entity will be 37.2 per cent owned by Bharti Airtel and 29.4 per cent by Vodafone Group, while 1.1 per cent will be with Providence and the rest by public shareholders.

In case Idea and Providence decide to continue to stay invested, Bharti Airtel would have a shareholding of 33.8 per cent in the combined entity. Vodafone in such a scenario would have 26.7 per cent while Idea Group would get 7.1 per cent and Providence would have 3.1 per cent holding. The remaining 29.3 per cent would be with public.

"Airtel and Vodafone will have equal rights in the combined entity," it said. "Following completion, the board of the combined firm will comprise of 11 directors, of whom three will be appointed by each of Airtel and Vodafone, one will be appointed by KKR/Canada Pension Plan Investment Board and four (including the Chairman) will be independent," it added.

None of Airtel, Vodafone or Idea Group (if it elects to receive shares), will be subject to a lock-in on their shareholdings in the combined company. "It is intended that any cash consideration paid to Idea Group and/or Providence will be financed through new debt facilities and the existing cash resources of Bharti Infratel. On the basis that Idea Group and Providence elect to receive the maximum possible cash consideration, the pro forma net debt of the combined company would have been Rs 5,600 crore ($800 million) as at March 31, 2018," it said.