Sunil Mittal's new tower deal an upturn for Airtel in fight with Mukesh Ambani's Reliance Jio

The first inkling of bad news in the offing for Bharti Airtel came in January this year. The country's leading telecom operator's net profit for third quarter of the last fiscal had dipped 39 per cent to Rs 306 crore. Though the company had seen its net profits steadily falling over the past six straight quarters, this was reportedly its smallest profit in four years.

And this week the company's fortunes hit rock-bottom when it reported a net loss in the Q4 results - for the first time in 60 quarters. It had last reported a quarterly loss of around Rs 7 crore back in December 2002, but this time round net loss for its India business in the quarter ended March stood at Rs 652 crore. However, it may be a mistake to write off billionaire Sunil Bharti Mittal and his mobile company - India's largest currently - in the great Indian data war.

Bharti Infratel Ltd has agreed to merge with Indus Towers, in a deal that creates the world's second biggest telecom tower company with an equity value estimated at a staggering $14.6 billion. The transaction, which values Indus Towers at roughly $10 billion, will create an infrastructure giant with more than 163,000 towers, next only to China Tower.

Bharti Airtel, the majority owner of Bharti Infratel, will be the biggest shareholder in the combined company followed by Vodafone Group Plc, the companies said in a joint statement on Wednesday.

Indus' two other main shareholders, Idea Cellular and Providence Equity Partners, will have an option to cash out. Bharti Airtel also said separately it would sound out potential investors with a view to selling stakes in the combined entity.

The deal comes amid a fierce price war in the Indian telecom market after the entry of Mukesh Ambani's Reliance Jio that has spurred a rush of mergers and acquisitions, including a planned merger of Vodafone's India and Idea that threatens Bharti Airtel's position as India's biggest phone carrier.

According to a column on Bloomberg, Mittal wants to monetise the assets he owns to take on Mukesh Ambani's Reliance Jio. "If the expanded tower company is able to negotiate better rates with tenants, finding a buyer for, say, half of Airtel's stake could easily add $3 billion to Mittal's telecom war chest," the article says.

The deal is expected to close before March-end next year. Vodafone and Idea had earlier disclosed that they were working on plans to sell their stakes in Indus and other tower assets they separately own to help reduce the debt burden for the merged telecom company.

The deal also comes a day after Bharti Airtel reported its smallest quarterly profit in 15 years, hit by the price war with Reliance Jio.

Bharti Airtel shares closed 3.4 per cent higher on Wednesday after the deal was announced. Bharti Infratel shares fell 1.1 percent. Under the deal, Bharti Infratel, which currently owns 42 per cent of Indus Towers, will pay 1,565 of its own shares for ' Airtel inks deal to merge with Indus Tower creating $14.6 bn entity Second biggest telco tower shaping up each Indus Towers share, the companies said in a statement.

Bharti Airtel will hold between 33.8 per cent to 37.2 per cent of the combined business, whose name will remain Indus Towers. Vodafone, which will be issued new shares in exchange for its 42 per cent stake, will gain between 26.7 per cent and 29.4 per cent.

While telecom tower operators in India have benefited from growing demand from carriers that have rolled out high-speed 4G services, they have also lost tenants in some areas as several money-losing carriers shutdown operations.

DEAL CONTOURS

• Name of the combined entity will remain Indus Towers
• Bharti Infratel currently owns 42% of Indus Towers
• It will pay 1,565 of its own shares for each Indus share & hold 33.8-37.2% of the firm
• Vodafone will be issued new shares in exchange for its 42% stake.