RCom, Aircel makes ‘substantial progress’ in merger talks

Reliance Communications, Aircel  merger

Anil Ambani group’s Reliance Communications and Aircel Cellular, a unit of Maxis of Malaysia, have again extended talks for merging the wireless operations of the latter with the former by 30 days.

The companies noted that ‘substantial progress’ has been made in the matter.

“Based on the substantial further progress made, RCOM, MCB and Sindya have mutually extended the exclusivity period between RCOM and Maxis Communications Berhad and Sindya Securities and Investments Private Limited, the shareholders of Aircel, by 30 days to June 22, 2016,” Reliance Communications said in a note today.

The merger talks have been going on for six months now.

The talks were delayed for various reasons, including ongoing reorganization of RCom’s spectrum holdings via sale of airwaves to Mukesh Ambani’s Reliance Jio Infocomm and the merger of MTS with RCom.

In addition, it also makes sense for the two companies to merge only after the upcoming spectrum auction, as, by then, the total quantum of spectrum in the market will go up.

If the total spectrum in the market is higher, RCom and Aircel will be able to hold on to their combined spectrum holdings without running into regulatory holding limits.

Under India’s current rules, no single company should hold more than 25% of the total commercial spectrum or 50% of any single band in any license area.

Aircel has already disposed off 20 MHz of lucrative 4G spectrum in favor of Airtel in eight circles.

In addition, Aircel has extensive holdings in the 2100 MHz 3G band as well as in the 1800 MHz band.

Once the merger is completed, the new entity will almost certainly convert Aircel’s 1800 MHz holding — currently being used for 2G services — into 4G suitable-spectrum by paying ‘liberalization charges’ to the government.

In addition, RCom is also working on a merger with MTS, which will bring in precious 800 MHz spectrum in eight circles. This is also likely to be converted to 4G spectrum.

At the end of the three-way merger, RCom will have a 4G spectrum footprint that will rival that of Reliance Jio and Bharti Airtel and easily outpace that of Idea Cellular and Vodafone India.

Armed with a sharing agreement with Reliance Jio, the mergers are set to make RCom a key player in India’s 4G data market.

All the mergers are being carried out on a share-swap basis.

Individually, these companies would have found it difficult to buy spectrum from the auctions due to strict net worth requirements for bidders. RCom, Aircel and MTS have tremendous amounts of debt on their balance sheets.