New Delhi: Telecom players Reliance Communications Ltd (R-Com) and Aircel Ltd are expected to sign an agreement for merger of their businesses by the first week of September.

“Term sheet between the two companies have been finalised. Definitive agreement for merger between the two companies is expected to be signed in a week or 10 days," a person with direct knowledge of the matter said.

The R-Com and Aircel talks, if successful, would lead to formation of the third-largest telecom operator in the country with a subscriber base of over 196 million.

“At present no regulatory approvals are required. The process for regulatory approval will begin after R-Com and Aircel sign definitive agreement. It should take around 4-6 month time to complete merger and the combined entity will be rebranded," the person said.

The new entity, which is in the works, will hold spectrum across all allocated bands—800 megahertz (MHz), 900 MHz, 1,800 MHz, 2,100 MHz and 2,300 MHz—for 2G, 3G and 4G services.

On the other hand, R-Com and Sistema (MTS) are in process of merger. Sistema will hold 10% stake in the new entity that will formed post its merger with R-Com.

In December last, the two firms announced entering into 90-day ‘exclusivity period’ for the merger deal that will exclude R-Com’s tower and optical fibre assets for which a separate sale process is ongoing. The talks were later extended twice.

The merged entity is expected to have ₹ 25,000 crore business from the first day of its operation and is estimated have Ebitda (earnings before interest, taxes, depreciation and amortization) of ₹ 7,000 crore and finance cost of about ₹ 3,000 crore.

“R-Com and Aircel have had nil free cash flow for a long time but the resultant entity is being structured in a manner to have ₹ 4,000 crore free cash flow which it can use for investments in network," the person said.

(Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.)

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