RCom-Aircel merger talks for another fortnight

Merger talks between Reliance Communications (RCom) and Aircel will be extended by a couple of weeks, as both parties are thrashing out the final contours of the deal with their bankers. On May 22, both had decided to extend exclusive merger talks with each other by a month that will expire on Wednesday. It has been learnt the lenders are putting their weight behind the merger and the State Bank of India is leading this consortium of lenders.

Bankers have also ratified the amount of debt that the new entity can take on. Earlier, both companies were set to transfer only Rs 10,000 crore each, but with the blessings of the bankers that this amount had been increased to Rs 14,000 crore each, say company sources. Aircel's debt currently is close to Rs 14,000 crore and RCom will also transfer Rs 14,000 crore of its debt to the new entity where it will hold 50 per cent stake.

Sources close to the deal claim the merger will possibly be announced early July and the contours will remain similar to what was disclosed earlier.

Both companies will own 50 per cent each in the new entity, which will house the wireless business of RCom and Aircel. Given that there will be duplication of resources and manpower, both companies are in the process of identifying the same so that they can be addressed. Other than a few thousand redundancies, the company will also have to prune their existing towers where there is a duplication.

Ericsson is currently engaged in identifying the possible overlaps in towers and once the exercise is over, both companies will decide how many of these towers will have to be given up. This will call for renegotiation of contracts with tower companies. This could also potentially impact the tenancies of Reliance Infratel, if the new entity decides to give up some of its towers. The new company will be run by a professional management.

Insiders claim that there will be no segregation of decision-making powers, as is the case in many 50:50 joint ventures. Given that both companies do not have the appetite to invest in fresh spectrum to roll out data services, a merger makes immense sense and which is why it's being pushed aggressively by all stakeholders. RCom shut down its CDMA operations completely in nine circles and is planning to offer 4G data services to its customers through its partnership with Jio.

Reliance Communications (RCOM)