Idea weds Spice - How ? Remains to be answered

Idea Cellular and Spice Telecom along with Telekom Malaysia (TM) that holds 49% stake in Spice, are yet to work out an amicable arrangement between the deal between the two - Merger or acquisition. While Idea, in which the Birlas own 57% stake, wants to fully acquire Spice, the Modis-promoted company is keen for a merger.

Spice has 2.8 million subscribers, largely high-end, in Punjab and Karnataka circles where Idea is not yet present. Idea, which listed on the bourses in March this year, has grown through the organic as well as the inorganic route in the past. While an acquisition of Spice will give Idea a ready entry into two new circles and a good user base, the Birlas are not willing to pay over the top. Spice is said to be quoting a price of more than a billion dollars for the two-circle operation, to which the Birlas are not agreeing. “We are a fast-growing company and our valuation is definitely higher than a billion dollar,” a Spice executive said. However, going by the fact that promoters of Spice will offload 20% stake in the forthcoming IPO for $150 million, the company’s valuation is $750 million. This remains a bone of contention between the two sides. Idea will continue to be an AV Birla group company going forward and there was no question of the company diluting its identity in a merger. Also, a buy-out of Idea by Spice seems unlikely because Idea is seven times bigger than Spice. AV Birla group officials have earlier said the group will not dilute its stake in Idea below 51%.

Meanwhile, TM has clearly said that it will not exit the Indian market, TM bought 49% stake in Spice in March last year for $179 million. Spice applied for spectrum in 20 circles in September last year. It has already received the DoT nod for NLD and ILD operations. It is too early for the deal to come through as Spice was working on its IPO ahead of any agreement. Sebi has given its approval to the public offering. “We should be opening in the end of June. However, an acquisition after the listing of Spice will become more complicated due to regulatory issues. For the year 2006, Spice recorded revenue of Rs 533.78 crore and EBITDA of Rs 107.86 crore. Its EBITDA margin fell from 23.8% to 20.2% at the end of 2006. The company’s capital expenditure at the end of last year totalled Rs 269 crore.