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MERGER AND ACQUISITION

MERGER OF IDEA CELLULAR LTD AND SPICE TELECOMMUNICATION

PRESENTED BY:VIDYA HANCHATE (10) VIRAJ SANGHVI (45)

PRESENTED TO: PROF. CA. NITANT TRILOKEKAR

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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 exists

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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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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.

IDEA AND SPICE MERGER

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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.

IDEA AND SPICE MERGER

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KIND OF MERGERThe 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 MERGER1. ON FINANCIAL STATEMENT

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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

EFFECTS OF MERGER

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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

EFFECTS OF MERGER

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BIBLIOGRAPHY

http://www.india-server.com/news/idea-cellular-to-buy-out-spice-1712.html

http://www.moneycontrol.com/news_html_files/news_attachment/2008/Idea%20Cellular%20acquires%20Spice%20Comm_Event%20Update.pdf

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

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