FY2018-2019
Merger of Bharti Infratel and Indus Towers: creating a listed pan-India tower company
New Delhi/Mumbai, April 25, 2018 - India and London, United Kingdom –
Key highlights
- ● The combination of Bharti Infratel and Indus Towers by way of merger will create a pan-India tower company, with over 163,000 towers, operating across all 22 telecom service areas in India. The combined company will be the largest tower company in the world outside China[i].
- ● The combined company, which will fully own the respective businesses of Bharti Infratel and Indus Towers, will change its name to Indus Towers Limited and will continue to be listed on the Indian Stock Exchanges.
- ● The combination of the two companies’ highly complementary footprints will create a tower operator with the ability to offer the high quality shared passive infrastructure services needed to support the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies for the benefit of Indian consumers and businesses. The combined company will continue to offer high quality passive infrastructure services to all telecom operators on a non-discriminatory basis, thus helping to support the delivery of the Government of India’s vision of ‘Digital India’.
- ● The merger ratio (1,565 shares of Bharti Infratel for every 1 Indus Towers share, the “Merger Ratio”) is within the range recommended by the independent valuer. The transaction values Indus Towers at an enterprise value of INR715bn (US$10.8bn) or 9.3x EV/LTM EBITDA[ii].
- ● Idea Group has the option to either: (i) sell its 11.15% shareholding in Indus Towers for cash based on a valuation formula linked to the VWAP for Bharti Infratel’s shares during the 60 trading days prior to completion of the merger[iii], which, if calculated at the time of this announcement, would equate to a cash consideration of INR65bn (US$1.0bn)[iv], or alternatively, (ii) receive new shares in the combined company based on the Merger Ratio. All the proceeds from the sale of the 11.15% stake will be for the benefit of the entity resulting from the merger of Vodafone India and Idea Group.
- ● Providence has the option to elect to receive cash or shares for 3.35% of its 4.85% shareholding in Indus Towers, with the balance exchanged for shares.
- ● Vodafone will be issued with 783.1m new shares in the combined company, in exchange for its 42% shareholding in Indus Towers. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4%[v] shareholding in the combined company. The Transaction values Vodafone’s shareholding at INR284bn (US$4.3bn)[vi].
- ● On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, Bharti Airtel’s shareholding will be diluted from 53.5% in Bharti Infratel today to 37.2% in the combined company[vii].
- ● Pro forma for the Transaction, the combined company’s equity value would be INR965bn (US$14.6bn)[viii].
- ● The final number of shares issued to Vodafone and the cash paid or shares issued to Idea Group and Providence, will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers.
- ● Bharti Airtel and Vodafone will jointly control the combined company, in accordance with the terms of a new shareholders’ agreement.
- ● The transaction is conditional on regulatory and other approvals, including from CCI, SEBI, NCLT, DoT (FDI approval), and is expected to close before the end of the financial year ending 31 March 2019.
Transaction details
Bharti Airtel Limited (NSE:BHARTI) (“Bharti Airtel”), Idea Cellular Limited (NSE:IDEA) (along with its subsidiary ABTL, “Idea Group”) and Vodafone Group Plc (LSE:VOD) (“Vodafone”) today announce that they have agreed to merge Vodafone’s, Idea Group’s and Providence Equity Partners’ (“Providence”) respective shareholdings in Indus Towers Limited (“Indus Towers”) into Bharti Infratel Limited (NSE:INFRATEL) (“Bharti Infratel”), creating a combined company that will own 100% of Indus Towers (the “Transaction”).
Indus Towers is currently jointly owned by Bharti Infratel (42%), Vodafone (42%), Idea Group (11.15%) and Providence (4.85%).
The transaction will be structured as follows:
- a) Indus Towers will be merged with and into Bharti Infratel through a scheme of arrangement.
- b) The Merger Ratio of 1,565 shares of Bharti Infratel for every 1 Indus Towers share is within the range recommended by the independent valuer. Based on the SEBI pricing guidelines for Bharti Infratel, in relation to the proposed scheme, as at 23 April 2018 (INR363 per share) [ix], the Merger Ratio implies an enterprise value for Indus Towers of INR715bn (US$10.8bn). This is equivalent to valuing Indus Towers at 9.3x EV/LTM EBITDA[x].
- c) It is intended that Idea Group will sell its 11.15% shareholding for cash concurrent with completion of the Scheme. The cash consideration payable by Bharti Infratel will be based on a formula linked to Bharti Infratel’s VWAP for the 60 trading day period prior to completion of the merger[xi]. Based on Bharti Infratel’s VWAP during the last 60 trading days prior to the date of this announcement, this would equate to a cash consideration of INR65bn (US$1.0bn). In lieu of cash, Idea Group will be able to elect to be issued with 207.9m new shares, based on the Merger Ratio[xii]. This would be equivalent to a 7.1% shareholding in the combined company, on the basis that Providence also elects to receive new shares in exchange for its full 4.85% shareholding in Indus Towers. All the proceeds from the sale of the 11.15% stake will be for the benefit of the entity resulting from the merger of Vodafone India and Idea Group.
- d) Providence will receive new shares equivalent to a 1.1% shareholding in the combined company in exchange for 1.5% out of its 4.85% shareholding in Indus Towers. The consideration for the remaining 3.35% of its shareholding in Indus Towers will be settled by Bharti Infratel in cash or shares at Providence’s election. The valuation terms of the cash consideration will be identical to that for Idea Group and the valuation terms for the share consideration will be based on the Merger Ratio.
- e) Vodafone will be issued with 783.1m new shares in the combined company, in exchange for its 42% shareholding in Indus Towers. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4%[xiii] shareholding in the combined company. The Transaction values Vodafone’s shareholding at INR284bn (US$4.3bn)[xiv].
- f) On the basis that (i) Providence decides to sell 3.35% out of its 4.85% shareholding in Indus Towers for cash, and (ii) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, Bharti Airtel’s shareholding will be diluted from 53.5% in Bharti Infratel today to 37.2% in the combined company[xv].
- g) The final number of shares issued to Vodafone and the cash paid or shares issued to Idea Group and Providence, will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers.
Strategic combination
Indus Towers currently operates in 15 telecom service areas (“Circles”) and Bharti Infratel’s operations are focused on the remaining 7 Circles. The combination of Bharti Infratel and Indus Towers, with their highly complementary footprints, will create a pan-India tower company with the ability to offer high quality passive infrastructure services to all operators on a non-discriminatory basis, needed to support the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies.
Taken together, Bharti Infratel and Indus Towers had over 163,000 towers and 367,000 tenancies as at 31 March 2018. With over INR253bn (US$3.8bn) in revenues (for the financial year ended 31 March 2018), the combined company will be well placed to invest on a national basis to satisfy the future demand from all telecoms operators in India as they continue to densify their networks to support sustained data traffic growth and roll out new network technologies. The merger of Bharti Infratel and Indus Towers is founded on a shared commitment to realise the Government of India’s ‘Digital India’ vision, delivering significant benefits to 1.3bn Indian consumers and creating substantial value for all stakeholders.
Operational synergies are also anticipated but have not been quantified at this stage. They include:
- i. Benefits of scale for capex, both in terms of new tower roll-out and tower maintenance;
- ii. Simplification of the organisational structure; and
- iii. General and administrative cost efficiencies.
Joint governance and management
Bharti Airtel and Vodafone will have equal rights in the combined company. They have entered into a shareholders’ agreement and it is expected that the combined company’s articles of association will be amended at completion to reflect some of these rights.
Following completion, the Board of the combined company will comprise of 11 directors, of whom three will be appointed by each of Bharti Airtel and Vodafone, one will be appointed by KKR/Canada Pension Plan Investment Board and four (including the Chairman) will be independent. The management team will be confirmed prior to closing.
None of Bharti Airtel, Vodafone or Idea Group (if it elects to receive shares), will be subject to a lock-in on their shareholdings in the combined company[xvi].
After completion, the combined company will be accounted for under the equity method by Vodafone and Bharti Airtel.
Capital structure and dividend policy
It is intended that any cash consideration paid to Idea Group and/or Providence will be financed through new debt facilities and the existing cash resources of Bharti Infratel. On the basis that Idea Group and Providence elect to receive the maximum possible cash consideration, the pro forma net debt of the combined company would have been INR56bn (US$0.8bn) as at 31 March 2018. This is equivalent to 0.5x net debt/LTM EBITDA[xvii].
Pro forma for the Transaction, the combined company’s equity value would be INR965bn (US$14.6bn)[xviii], based on the SEBI pricing guidelines for Bharti Infratel in relation to the proposed scheme[xix], as at 23 April 2018 (INR363 per share).
Bharti Airtel and Vodafone have agreed a capital structure and dividend policy which is expected to be implemented post completion. The combined company is expected to distribute any excess cash flow to its shareholders through dividends or share buybacks, without exceeding a maximum leverage ratio of 3.0x LTM EBITDA.
Conditions to completion and indicative timetable
The transaction is subject to approvals from the relevant regulatory authorities, including from CCI, SEBI, NCLT, DoT (FDI approval), approval from Bharti Infratel’s shareholders, necessary corporate approvals from the companies involved, as well as closing conditions.
The transaction is expected to complete before the end of the financial year ending 31 March 2019.
KPIs and key financials of Bharti Infratel, Indus Towers and the combined company
12 months ending 31 March 2018 INRm (US$m) |
Bharti Infratel (excl. its 42% share of Indus Towers) |
Indus Towers (100%) |
Combined company |
|
Towers |
39,523 |
123,639 |
163,162 |
|
Tenancies |
88,665 |
278,408 |
367,073 |
|
Tenancy Ratio |
2.24x |
2.25x |
2.25x |
|
|
|
|
|
|
Revenue |
INR66,180m (US$999m) |
INR187,424m (US$2,830m) |
INR253,604m (US$3,830m) |
|
EBITDA |
INR31,854m (US$481m) |
INR77,160m (US$1,165m) |
INR109,014m (US$1,646m) |
|
Capex |
INR11,223m (US$169m) |
INR24,730m (US$373m) |
INR35,953m
|
|
Net debt / (net cash) |
(INR68,162m) |
INR39,176m |
INR55,595m |
Current shareholding structure of Bharti Infratel and Indus Towers
|
|
Bharti Infratel |
Indus Towers |
|
Bharti Airtel |
53.5% |
– |
|
Bharti Infratel |
n.a. |
42.0% |
|
Vodafone |
– |
42.0% |
|
Idea Group |
– |
11.15% |
|
Providence |
– |
4.85% |
|
Public shareholders |
46.5% |
– |
Indicative combined company shareholding structures
|
|
Idea Group (all cash election); Providence (1.5% in shares, 3.35% in cash) |
Idea Group (all shares election); Providence (all shares election) |
|
Idea Group cash election? |
Yes |
No |
|
Providence cash election? |
Yes |
No |
|
Bharti Airtel |
37.2% |
33.8% |
|
Vodafone |
29.4% |
26.7% |
|
Idea Group |
– |
7.1% |
|
Providence |
1.1% |
3.1% |
|
Public shareholders |
32.3% |
29.3% |
Disclaimer
Certain information contained in this
document constitutes
“forward-looking
statements”, which can be
identified by the use of terms such as
“may”, “will”,
“should”,
“expect”,
“anticipate”,
“project”,
“estimate”,
“intend”,
“continue”,
“target” or
“believe” (or the negatives
thereof) or other variations thereon or
comparable terminology, or by
discussions of strategy, plans,
objectives, goals, future events or
intentions. Such statements express the
intentions, opinions, or current
expectations of the parties with respect
to possible future events and are based
on current plans, estimates and
forecasts, which the parties have made
to the best of their respective
knowledge, concerning, among other
things, the respective business, results
of operations, financial position,
prospects, growth and strategies,
statements regarding the transaction and
the anticipated consequences and
benefits of the transaction, and the
targeted closing date of the
transaction. Due to various risks and
uncertainties, actual events or results
or the actual performance may differ
materially from those reflected or
contemplated in such forward-looking
statements.
Such risks and uncertainties include,
but are not limited to, regulatory
approvals that may require acceptance of
conditions with potentially adverse
impacts; risks involving the
parties’ respective ability to
realise expected benefits associated
with the transaction; the impact of
legal or other proceedings; and
continued growth in the market for
telecommunications services and general
economic conditions in the relevant
market(s).
Furthermore, a review of the reasons why
actual results and developments may
differ materially from the expectations
disclosed or implied within
forward-looking statements can be found:
- under “Forward-looking statements” and “Principal risk factors and uncertainties” in the Vodafone Group Plc’s annual report for the year ended 31 March 2017 and under “Other Information – Forward-Looking Statements” in Vodafone Group Plc's Trading Update for the quarter ended 31 December 2017 (available on its website at www.vodafone.com);
- in the section headed "Risks and Concerns" in Bharti Airtel's 2017 Annual Report (available on its website at www.airtel.in);
- in the section headed "Opportunities and Threats" in Bharti Infratel's 2017 Annual Report (available at its website at www.bharti-infratel.com); and
- in the section headed "Opportunities, Risks, Concerns and Threats" in Idea Group's 2017 Annual Report (available on its website at www.ideacellular.com).
No website or part thereof, or other
document, is or shall be deemed to be
incorporated in this announcement. None
of Vodafone, Bharti Airtel, Bharti
Infratel or Idea Group assumes any
responsibility or liability for the
content of any website or document
published by any other party.
No assurances can be given that the
forward-looking statements in this
announcement will be realised. As a
result, recipients should not rely on
such forward-looking statements. Subject
to compliance with applicable law and
regulations, the parties undertake no
obligation to update these
forward-looking statements. No
representation or warranty is made as to
the reasonableness of such
forward-looking statements. No statement
in this announcement is intended to be
nor should be construed as a profit
forecast or estimate for any period.
Actual results could differ materially
from those expressed or implied.
This announcement is for information
purposes only and is not intended to and
does not constitute, or form part of,
any invitation or offer to sell,
dispose, acquire, purchase or subscribe
for any securities of any companies
mentioned herein in any jurisdiction,
whether pursuant to the transaction or
otherwise. This document shall not be
distributed or used by any person or
entity in any jurisdiction where such
distribution or use would be contrary to
applicable law or regulation.
About Bharti Airtel
Bharti Airtel Limited is a leading
global telecommunications company with
operations in 16 countries across Asia
and Africa. Headquartered in New Delhi,
India, the company ranks amongst the top
3 mobile service providers globally in
terms of subscribers. In India, the
company's product offerings include 2G,
3G and 4G wireless services, mobile
commerce, fixed line services, high
speed home broadband, DTH, enterprise
services including national &
international long distance services to
carriers. In the rest of the
geographies, it offers 2G, 3G, 4G
wireless services and mobile commerce.
Bharti Airtel had over 413 million
customers across its operations at the
end of March 2018. To know more please
visit, www.airtel.com
About Bharti Infratel
Bharti Infratel is one of India’s
leading providers of tower and related
infrastructure and it deploys, owns and
manages telecom towers and communication
structures, for various mobile
operators. The company’s
consolidated portfolio of over 91,000
telecom towers, which includes over
39,000 of its own towers and the balance
from its 42% equity interest in Indus
Towers, makes it one of the largest
tower infrastructure providers in the
country with presence in all 22 telecom
circles. The three leading wireless
telecommunications service providers in
India by revenue - Bharti Airtel,
Vodafone India and Idea Cellular Limited
- are the largest customers of Bharti
Infratel. The company has been the
industry pioneer in adopting green
energy initiatives for its operations.
For further details visit www.bharti-infratel.com
About Idea Cellular Limited
Idea Cellular Limited is the third
largest wireless operator by subscribers
in India with a Revenue Market Share of
approximately 15.9% of the Indian mobile
telecommunications services industry
(excluding wireline revenue for Bharat
Sanchar Nigam Limited and Mahanagar
Telephone Nigam Limited) for the Q3FY18.
Idea Cellular Limited is listed on
National Stock Exchange (NSE), and the
Bombay Stock Exchange (BSE) in India.
Idea Cellular Limited is part of the
Aditya Birla Group, which is one of the
largest business groups in India. The
Aditya Birla Group is a conglomerate
with operations in 35 countries and has
business interests in, among others,
mobile telecommunications, financial
services, metal and mining, cement,
carbon black, textiles, garments,
chemicals and fertilizers sectors.
More information on Idea Cellular
Limited is available at www.ideacellular.com
and on the Aditya Birla Group at www.adityabirla.com
About Indus Towers
Indus Towers Limited is an independently
managed company offering passive
infrastructure services to all telecom
operators. Founded in 2007, Indus Towers
Limited has been promoted under a joint
venture among entities of Bharti Group
(rendering telecom services in India
under the brand name Airtel), Vodafone
Group (rendering telecom services under
the brand name Vodafone) and Aditya
Birla Group (rendering telecom services
under the brand name Idea), who created
history by collaborating to share
telecom infrastructure. Indus Towers has
a presence in the 15 major telecom
circles of India, and has achieved
278,408 tenancies, a first in the
telecom tower industry globally. With
123,639 towers in 15 circles across the
country, Indus Towers has the widest
coverage in India and is also the
largest telecom tower company in the
world. Indus Towers began as the largest
telecom tower company in 2008 with a
modest tenancy ratio of 1.28 and within
5 years reached the momentous
achievement of 2.0x.
About Vodafone
Vodafone Group Plc is one of the
world’s largest telecommunications
companies and provides a range of
services including voice, messaging,
data and fixed communications. Vodafone
Group Plc has mobile operations in 26
countries, partners with mobile networks
in 50 more, and fixed broadband
operations in 19 markets. As of 31
December 2017, Vodafone Group Plc had
523.5m mobile customers and 18.5m fixed
broadband customers, including India and
all of the customers in Vodafone Group
Plc’s joint ventures and
associates. For more information, please
visit: www.vodafone.com
Advisors to Bharti Airtel and
Bharti Infratel
Fairness opinion provider for Bharti
Infratel: JP Morgan.
Legal advisor: AZB & Partners.
Advisors to Idea Group
Financial advisor: DSP Merrill Lynch
Limited.
Legal advisor: Bharucha & Partners.
Advisors to Vodafone
Financial advisor: Morgan Stanley.
Legal advisors: S&R Associates,
Slaughter and May.
Independent Valuer
Walker Chandiok & Co LLP.
Notes to Editors
FX rate used:
INR / US$ 66.22
[1] The combined company will be the
largest tower company in the world
outside China by number of towers as at
March 2018
[1] Based on the SEBI pricing guidelines
for Bharti Infratel, in relation to the
proposed scheme, as at 23 April 2018
(INR363 per share), implying an Indus
Towers equity value of INR676bn
(US$10.2bn) based on the Merger Ratio,
Indus Towers net debt of INR39bn
(US$0.6bn), and Indus Towers March 2018
LTM EBITDA of INR77bn (US$1.2bn)
[1] Idea Group’s shareholding in
Indus Towers held through wholly-owned
subsidiary (ABTL). Bharti
Infratel’s 60 trading day VWAP
will be computed at the end of Idea
Group’s election period, i.e.
after the completion of all conditions
precedent including regulatory approvals
required for the merger
[1] Based on Bharti Infratel’s 60
trading day VWAP of INR339 as at 23
April 2018 and after applying a 10%
discount to the implied Bharti Infratel
March 2018 LTM EBITDA multiple of 9.0x,
implying an Indus Towers equity value of
INR583bn (US$8.8bn)
[1] Calculated as 783.1m shares issued
to Vodafone / (current Bharti Infratel
shares outstanding of 1,849.6m + 783.1m
shares issued to Vodafone + 28.0m shares
issued to Providence) on the assumption
that Idea Group sells its shares for
cash and Providence elects to receive
cash for its 3.35% shareholding in Indus
Towers. The final number of shares
issued will be subject to closing
adjustments, including movements in net
debt and working capital for Bharti
Infratel and Indus Towers
[1] Based on 783.1m shares issued to
Vodafone and the SEBI pricing guidelines
for Bharti Infratel, in relation to the
proposed scheme, of INR363 per share as
at 23 April 2018
[1] Calculated as 989.8m current Bharti
Airtel shares in Bharti Infratel /
(current Bharti Infratel shares
outstanding of 1,849.6m + 783.1m shares
issued to Vodafone + 28.0m shares issued
to Providence), on the assumption that
Idea Group sells its shares for cash and
Providence elects to receive cash for
its 3.35% shareholding in Indus Towers.
The final number of shares issued will
be subject to closing adjustments,
including movements in net debt and
working capital for Bharti Infratel and
Indus Towers
[1] Based on the SEBI pricing guidelines
for Bharti Infratel, in relation to the
proposed scheme, as at 23 April 2018
(INR363 per share) and pro forma shares
outstanding of 2,660.7m (current Bharti
Infratel shares outstanding of 1,849.6m
+ 783.1m shares issued to Vodafone +
28.0m shares issued to Providence) on
the assumption that Idea Group sells its
shares for cash and Providence elects to
receive cash for its 3.35% shareholding
in Indus Towers. The final number of
shares issued will be subject to closing
adjustments, including movements in net
debt and working capital for Bharti
Infratel and Indus Towers
[1] The higher of (i) the two week
average of the highest and lowest daily
VWAP, and (ii) the six months weekly
average of the highest and lowest daily
VWAP
[1] See endnote 2
[1] See endnote 3
[1] Such election will be based on the
decision of the board of directors of
the entity resulting from the merger of
Vodafone India and Idea Group
[1] See endnote 5
[1] See endnote 6
[1] See endnote 7
[1] The transaction will constitute a
class 2 transaction for Vodafone
pursuant to the Listing Rules of the UK
Listing Authority. For the purpose of
the disclosure requirements of LR
10.4.1, Vodafone confirms that the value
of the gross assets which are the
subject of the transaction are €857m as
at 30 September 2017 and that any
decision to sell or to retain the Bharti
Infratel shares following closing, which
is expected to occur before the end of
the financial year ending 31 March 2019,
would be taken in light of circumstances
prevailing and investment considerations
at the relevant time
[1] Calculated as (Bharti Infratel
standalone March 2018 net cash of
INR68bn (US$1.0bn) + Indus Towers March
2018 net debt of INR39bn (US$0.6bn) +
INR84.6bn (US$1.3bn) cash outflow to
finance the acquisition of Idea
Group’s 11.15% as well as
Providence’s 3.35% shareholdings)
/ March 2018 combined company LTM EBITDA
of INR109bn (US$1.6bn)
[1] See endnote 8
[1] See endnote 9
