Aditya Birla Group's Idea Cellular has offered to buy majority stake in Spice Communications for an undisclosed amount, a deal, which will create, if successful, the fourth biggest mobile services provider in India.
According to sources close to the development, Idea has offered to buy 40.8 percent stake from the Modi Group, promoters of Spice Communications. While Telekom Malaysia holds 39.2 percent stake in the company, the remaining stake is in the hands of the retail and institutional investors.
Earlier, Spice Communications chairman B.K. Modi said it was considering a stake sale and had been approached by UAE-based Etisalat and others, including NTT DoCoMo and AT&T. Stakeholder Telekom Malaysia had also expressed interest in buying the stake.
The reason for selling the stake, Modi said, was to raise funds for business expansion. Spice Communications operates in only 2 of the 23 circles Karnataka and Punjab - and has licenses to operate in four more.
According to market analysts, Modi could opt for either of the two routes [1] sell 34.8 percent of his stake to Telekom Malaysia (as Indian laws permit a maximum of 74 percent foreign holding in Indian telecom companies) and the remaining 6 percent to Idea, or [2] sell 10 percent stake to Idea (as Indian laws do not permit more than 10 percent cross-holding in telecom companies) and the remaining stake (30.8 percent) to Telekom Malaysia (which, after the deal, would hold 70 percent in Spice Communications).
Hence, Modi said he would not take any final decision before hearing from Telekom Malaysia and receiving its proposal.
In any case, analysts feel the final aim is to merge Spice Communications with Idea and bring in Telekom Malaysia as a strategic partner.
Meanwhile, Etisalat has reportedly backed out from the bidding war as it found the asking price per share way too high. A source close to the development said the telecom company was ready to pay Rs.60 per share but decided to back out when Rs.70 per share was quoted as the asking price. The final asking price might hover near Rs.90 per share, the source said.
Idea Cellular is the fourth largest GSM operator in India, after Bharti Airtel, Vodafone-Essar and state-run Bharat Sanchar Nigam Ltd (BSNL). It has a subscriber base of over 26 million while Spice Communications has a subscriber base of more than 3 million.
According to market analysts, acquisition of Spice Communications would help Idea foray into Karnataka and Punjab where it has no operations. Idea currently operates in 11 circles - Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Chhatisgarh, Maharashtra, Goa, Rajasthan and UP.
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