RCom, MTS merge in a cashless stock deal

Chennai: Reliance Communications paved way for the first major consolidation in the Indian telecom industry by agreeing to acquire the wireless business of Sistema Shyam TeleServices in India. SSTL offers CDMA telephony services in India under the MTS brand.

In the cashless, stock- swap deal, SSTL would acquire 10 per cent equity in RCom and the latter has agreed to pay SSTL’s remaining spectrum licensing fee to the government amounting to Rs 392 crore per annum for the next 10 years.

SSTL intends to pay off its existing debt before the closing of the transaction, the company said in a statement. The transaction is subject to regulatory approvals. Minority shareholders of SSTL will be given an option to exchange their shares in SSTL with the pro-rata RCom shares held by the company.

While Sistema owns 73.71 per cent, the Shyam group has 23.79 per cent and 2.5 per cent is owned by public shareholders. SSTL and RCom began talks related to the merger in June this year.

Under the scheme of arrangement, RCom would allot about 27 crore equity shares of Rs 5 each amounting to 10 per cent of stakes to SSTL. The allotted shares would be listed on both NSE and BSE.

RCom would acquire about 9 lakh customers from MTS and would add close to Rs 1,500 crore in annual revenue. Moreover, it would get the 800/850 mhz band spectrum ideal for 4G/LTE services.Post integration, RCom would be the largest holder of the spectrum band aggregating 148.75 mhz. It would also be able to extend the validity of its existing spectrum in the band in eight circles, including Delhi, Gujarat and Tamil Nadu by 12 years from 2012 to 2033.

“Shares of RCom were in action on Monday after the company’s board approved the merger of MTS for a cashless deal of Rs 4,500-5,000 crore. The stock was trading up by more than 8 per cent intraday sensing additional revenues and customer base RCom would benefit from the merger,” said Achin Goel, head - wealth management and financial planning at Bonanza Portfolio.