Astonishing! RCom and Aircel to merge next year!!

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Another huge news from the telecom industry hit the news headlines was the merger of Reliance Communications and Aircel. This merger will give birth to 65,000 crore giant. Reliance is still in talks with Sistema for 25% stake. The board of Reliance Communications has signed the deal that has been in negotiations since October last year. This was done shortly after the company’s quarterly results were announced.

 

After the merger, Reliance Communications and Aircel will the forth largest in terms of customers and revenues. The two giants have already initiated talks with the Russian company, Sistema which holds 10% stake in RCom. As soon as the company agrees, Reliance and Aircel will dilute its stakes proportionately. Both the companies will have 50:50 ownerships in the new firm. It will be unlisted in the few initial years and will work independently n a new brand name. The name is yet to be decided along with the new CEO. The new brand will not share any identity with the parent companies.

 

It will be the largest private sector company with an asset base of Rs 65,000 crore. The new unit will use Reliance Jio 4G network run by Mukesh Ambani as per sources. Both the companies, Reliance Communication and Jio share alliances and spectrum trading. The new entity will have second-largest spectrum holding in the country wit 2G, 3G, and 4G operations.

 

Anil Ambani said in a press release that along with their partners Maxis Communication they are happy to take the lead in the in the telecom sector. Anil Ambani wants to turn Reliance Communications wireless business into a special purpose vehicle excluding the tower on a slump sale and overseas arms. The special purpose vehicle, in turn, will get merged with a mobile business of Maxis Communications.

 

The deal is set to close early in 2017 during the first 6-8 month time. It will need regulatory, shareholders and court’s approvals. This has further motivated MCB to invest more in India. Since the time it acquired Aircel in 2006, MCB has invested more than Rs. 35,000 crores into Aircel. This has made it the largest investment by a foreign entity in India not just in telecom but in all sectors.

 

The merging and consolidation have now become inevitable. The main challenge which the companies will face is the cultural blend needed for both to work well. Reliance’s optic fiber profile, underseas cables and towers, are kept out of the merger.

 

The list of the strategic and financial advisory has some really big names like Goldman Sachs, Standard Chartered Bank, State Bank of India, PwC, KPMG, Khaitan & Co, Kirkland & Ellis and a few more. The launch of Jio has put pressure on the operators to provide low cost. Reliance and Aircel are not data players in the market. In order to turn the game, they will need some serious financial investment and operational commitment.

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