Vodafone to jointly control huge Indian tower firm following merger

Vodafone announced on Wednesday that itself, Bharti Airtel and Idea Cellular have agreed to merge their respective shareholdings in Indus Towers into Bharti Infratel, creating a combined company that will own 100% of Indus Towers.

The FTSE 100 telco giant currently owns 42% of Indus Towers, with Bharti Infratel owning another 42%, Idea Group holding 11.15%, and Providence owning 4.85%.

It said the combination of Bharti Infratel and Indus Towers by way of merger would create a pan-India tower company, with more than 163,000 towers operating across all 22 telecom service areas in India.

The combined company would be the largest tower company in the world outside of China.

It would fully own the respective businesses of Bharti Infratel and Indus Towers, and would change its name to Indus Towers and continue to be listed on the Indian Stock Exchanges.

“The combination of the two companies' highly complementary footprints will create a tower operator with the ability to offer the high quality shared passive infrastructure services needed to support the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies for the benefit of Indian consumers and businesses,” the joint statement from the companies read.

“The combined company will continue to offer high quality passive infrastructure services to all telecom operators on a non-discriminatory basis, thus helping to support the delivery of the Government of India's vision of 'Digital India'.”

The merger ratio of 1,565 shares of Bharti Infratel for every one Indus Towers share, was said to be within the range recommended by the independent valuer.

Indus Towers had an enterprise value of INR715bn, or 9.3x EV/LTM EBITDA, under the transaction.

Idea Group retained the option to sell its 11.15% shareholding in Indus Towers for cash based on a valuation formula linked to the VWAP for Bharti Infratel's shares during the 60 trading days prior to completion of the merger which, if calculated at the time of the announcement, would equate to a cash consideration of INR65bn.

Alternatively, it could receive new shares in the combined company based on the merger ratio.

All the proceeds from the sale of the 11.15% stake would be for the benefit of the entity resulting from the merger of Vodafone India and Idea Group.

Providence had the option to elect to receive cash or shares for 3.35% of its 4.85% shareholding in Indus Towers, with the balance exchanged for shares.

Vodafone said it would be issued with 783.1m new shares in the combined company, in exchange for its 42% shareholding in Indus Towers.

On the basis that Providence decided to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and Idea Group opted to sell its full 11.15% shareholding in Indus Towers for cash, Vodafone’s shares would be equivalent to a 29.4% shareholding in the combined company.

The transaction valued Vodafone's shareholding at INR284bn.

On the basis that Providence decided to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and Idea Group decided to sell its full 11.15% shareholding in Indus Towers for cash, Bharti Airtel's shareholding would be diluted from 53.5% in Bharti Infratel today to 37.2% in the combined company.

Pro forma for the transaction, the combined company's equity value would be INR965bn.

“The final number of shares issued to Vodafone and the cash paid or shares issued to Idea Group and Providence, will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers,” the companies explained.

Bharti Airtel and Vodafone would jointly control the combined company, in accordance with the terms of a new shareholders' agreement.

The transaction remained conditional on regulatory and other approvals, and was expected to close before the end of the financial year ending 31 March 2019.