MERGER AND ACQUISITION

MERGER OF IDEA CELLULAR LTD AND

SPICE TELECOMMUNICATION

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PRESENTED TO: PROF. CA. NITANT TRILOKEKAR

PRESENTED BY:
VIDYA HANCHATE (10) VIRAJ SANGHVI (45)
 MEANING
Merger
• The combination of two firms into a new legal entity.
• A new company is created.
• Both sets of shareholders have to approve the transaction.
Acquisition
• The purchase of one firm by another.
Takeover
• The transfer of control from one ownership group to
another.

Amalgamation
• A genuine merger in which both sets of shareholders must
approve the transaction.
• Requires a fairness opinion by an independent expert on
the true value of the firm’s shares when a public minority 2
exists
 REASONS FOR M&A
 Growth
 Can be internal or external( through M&A)
 Expand to new geographic markets
 Synergy
 Financial synergy
 Lowering of cost of capital
 Improvement of bond’s rating
 Operating synergy
 Revenue enhancement
 Cost reduction

 Diversification
 Growing out of parent industry
 Reducing risk and maintaining a stable dividends

 To enter more profitable industry but this is debatable

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 REASONS FOR M&A
 Horizontal Integration.

 Vertical Integration.
 Assurance of supply
 Lower inventory cost

 Not to pay profit to the supplier

 Transaction cost and disruptions at end of contract.

 Improved Management

 Improved R&D

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 COMPANY PROFILE: IDEA
CELLULAR
 Idea Cellular is a wireless telephony company operating in 22
telecom circles in India based in Mumbai.
 Founded in the year 1995.
 Key People: Kumar Mangalam Birla (Chairman),
Sanjeev Aga (MD),
Rajat Mukharjee (VP Corporate Affairs)
 It is the 3rd largest GSM company in India behind
Airtel and Vodafone and ahead of state run player BSNL.
 Present Holdings: Aditya Birla Group(49.05%), Axiata Group
Berhad (15%), Providence Equity (10.6%)
 Idea Cellular won the GSM Association Award for "Best Billing
and Customer Care Solution" for 2 consecutive years.
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 COMPANY PROFILE: SPICE TELECOM

 Spice Telecom is a mobile phone service provider in India

 Founded in the year1997 by BK Modi (Chairman).
 As of 30 April 2008, Spice had 4.4 million subscribers
representing a 1.7% market share in India, and was the second
and fifth largest mobile telecommunication service provider
within the Punjab and Karnataka circles, respectively.
 Spice was listed on the Bombay Stock Exchange Limited on 19
July 2007, and on the National Stock Exchange of India Limited
on 16 June 2008.
 Now, Idea Cellular owns more than
80% equity in Spice Communications.

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 IDEA AND SPICE MERGER

 Idea spice merger is a Horizontal merger.

 Idea-Spice deal is the 4th largest M&A in India.
 It is the latest instance of consolidation in India’s
telecommunications sector.
 Idea Cellular has bought a controlling interest in Spice
Communications in a cash and share transaction,.
 Idea will spend cash of up to Rs37.9 billion ($886.5 million) and
issue new shares.
 The deal finalized between Rs 77 and Rs 78 per share.
 Spice shareholders will get 49 Idea shares for every 100 shares they
hold.
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 IDEA AND SPICE MERGER

 Telekom Malaysia International (TMI) which had owned 39.2%

stake in Spice would swap its holding by getting a proportional
stake of 19% in the combined entity i.e. after merger.

 The deal gives Idea an entry into the Punjab and Karnataka
markets, and Spice’s 4.4 million customers.

 The deal had result in Idea Cellular moving ahead of Tata

Teleservices to become the country’s fifth-largest mobile service
provider.

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 IDEA AND SPICE MERGER
 The merged entity will have operations in 13 of the 22 telecom
circles in the country with a subscriber base of around 28.5mn.

 Idea has been allotted spectrum i.e. the highly efficient 900
Mhz in the 11 circles where it does not operate, and is readying
plans to roll out mobile services in them.

 The department of telecommunications has raised questions

about the merger between Idea Cellular and Spice Telecom
violating key clauses on intra-circle merger and mobile license
conditions. Later on the problem was solved.

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 KIND OF MERGER
The merger between Idea and Spice is highly synergistic as:
(1) Idea gets ready presence in both Karnataka & Punjab circles.

(2) Idea has saved atleast 30-36 months time vis-à-vis green field
rollout (9-12 months for network rollout, atleast 18-24 months
for EBIDTA break-even, in addition to waiting time for
spectrum allotment).

(3) Spice currently makes 25% EBIDTA margins in the two circles
and Idea can bring substantial operating efficiencies due to its
expertise and scale benefits.

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 EFFECTS OF MERGER
1. ON FINANCIAL STATEMENT

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 EFFECTS OF MERGER
2. ON OPERATIONS
 Idea has expanded its operations from 11 service areas in March, 2008 to
20 service areas in October, 2009.
 Company has recorded an increase of 79% in its subscriber base from
24.00 mn as of March 31, 2008 to 43.02 mn as of March 31, 2009.
 Company has increased its subscriber market share from 9.2% in 2007-
08 to 11% in 2008-09 on a national basis.
 The total Minutes of Usage have more than doubled from 86 bn minutes
in 2007-08 to 175 bn minutes in 2008-09.
3. SHARE CAPITAL
 The Authorised Share Capital has been increased by Rs. 25,000 mn to Rs.
82,750 mn.
 The Paid-up Equity Share Capital of the Company increased by Rs.
4,647.35 mn
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 EFFECTS OF MERGER
4. ON CAPITAL EXPENDITURE
 Company incurred a capital expenditure of Rs 66,857 mn during the
financial year 2008-09. As a result, cell sites of the Company have
increased from 24,793 as at end March, 2008 to 49,860 as at end
March, 2009.
 The Company also made significant progress in rolling out its
National Long Distance (NLD) network and as at end of September
2009, it carried about 51% of its captive NLD traffic.
5. AWARDS AND RECOGNITIONS
 Company has been selected as Emerging Company of the Year for
2009 by The Economic Times.
 Idea Cellular has been recognized as the 'Most Customer
Responsive Company' in the Telecom sector, at the prestigious
Avaya Global Connect Customer Responsiveness Awards 2010 13
 BIBLIOGRAPHY


http://www.india-server.com/news/idea-cellular-to-buy-out-spice-171
2.html

http://www.moneycontrol.com/news_html_files/news_attachment/2
008/Idea%20Cellular%20acquires%20Spice%20Comm_Event%20
Update.pdf


http://www.slideshare.net/vinittulsyan/indian-telecom-worst-yet-to-be
-seen-sell-sell-sell
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