Bharti Airtel To Acquire Telenor India As It Gears Up To Take On Reliance Jio

Airtel will buy Telenor India’s operations in seven circles after the acquisition. 

Signage for Bharti Airtel Ltd. is displayed outside a store in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)
Signage for Bharti Airtel Ltd. is displayed outside a store in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)

India's largest telecom operator Bharti Airtel Ltd. entered into an agreement to acquire Telenor (India) Communications Pvt. Ltd.

Airtel will acquire Telenor’s operations in seven circles – Andhra Pradesh, Bihar, Maharashtra, Gujarat, Uttar Pradesh (West), Uttar Pradesh (East), and Assam, the company said in a press release.

"It will also enable Airtel to further bolster its strong spectrum footprint in these seven circles, with the addition of 43.4 MHz spectrum in the 1,800 MHz band," the release added. The transaction is subject to regulatory approvals.

Bharti Airtel To Acquire Telenor India As It Gears Up To Take On Reliance Jio

The proposed acquisition will also include the transfer of all of Telenor India’s assets and customers. Telenor India’s operations and services will continue as normal until the completion of the transaction.

The acquisition will enhance the company's spectrum portfolio and create substantial long-term value for shareholders, Gopal Vittal, Bharti Airtel’s managing director and chief executive officer for India and South Asia, said in the press release.

The acquisition of additional spectrum through this transaction, which made an attractive business proposition, has further enhanced our already solid spectrum portfolio. The proposed transaction will also create substantial long-term value for our shareholders given the significant synergies.
Gopal Vittal, Managing Director And CEO (India and South Asia), Bharti Airtel

The combined entity will exceed the 50 percent revenue market share limit in only one circle, Bihar with 62.1 percent, latest data provided by Telecom Regulatory Authority of India shows.

According to the Department of Telecommunications’ merger and acquisition guidelines, a merged entity will have to bring down its revenue market share and subscriber base below 50 percent in any particular circle within one year.

Deal Rationale

The Telenor deal will improve Airtel's 4G network position, Nitin Soni, a director at Fitch Ratings who tracks the telecom sector, told BloombergQuint on the phone.

The main rationale behind this acquisition is to strengthen the 4G network position of Bharti, as the company rolls out its 4G in 1,800 MHz band and 2,100 MHz band. The value of this acquisition should mainly depend on the spectrum value.
Nitin Soni, Director, Fitch Ratings

The spectrum acquired from Telenor will help Bharti fortify its position in the face of rising consolidation and growing competition from Reliance Jio Infocomm Ltd., Sanjay Kapoor, the former chief executive officer in charge of India and South Asia for Bharti Airtel, told BloombergQuint.

1,800 MHz spectrum is a very potent spectrum and a major raw material for 4G data services. The major consideration for this acquisition will be some top-line contribution in the short run and mainly the spectrum.
Sanjay Kapoor, Former CEO, India And South Asia, Bharti Airtel

Mukesh Ambani's Reliance Jio has crossed the 10-crore subscriber mark in the first five months of operations, offering free services since the rollout in September. Ambani had announced on Tuesday that Jio will start charging for services from April 1.

The country’s second-largest mobile carrier Vodafone India Ltd. and third-largest player Idea Cellular Ltd. are also in talks to merge. Tata Teleservices Ltd. is reportedly looking to join forces with the proposed merger between Reliance Communications Ltd. and Aircel Ltd.

Telenor Exits India

The decision to exit India has not been taken lightly, Sigve Brekke, chief executive officer of Telenor Group, said in the press release.

After thorough consideration, it is our view that the significant investments needed to secure Telenor India’s future business on a standalone basis will not give an acceptable level of return.
Sigve Brekke, Chief Executive Officer, Telenor Group

Airtel will take over outstanding spectrum payments and other operational contracts, including tower lease, Telenor said in a separate press release.

The transaction will not trigger any impairment. As of fourth quarter of 2016, the remaining value of tangible and intangible assets in Telenor India amounted to 0.3 billion Norwegian krone (Rs 236 crore). 
Telenor Group Statement 

The transaction is expected to close within 12 months, Telenor added. Telenor India had total debt of Rs 4,130 crore as of March 31, 2016.

In an interview to BloombergQuint’s Menaka Doshi in January, Sunil Mittal, chairman of Bharti Enterprises Ltd., had said that it was in "India’s interest to give good exit opportunities to companies like Telenor”, and hinted at a deal between the two companies.

Yes. So there is a deal potentially to be had, there will be some deal in terms of Telenor and I don’t know if it will be us.
Sunil Mittal, Chairman, Bharti Enterprises, On January 21

The Bharti Airtel stock rallied as much as 11 percent to Rs 401 before cooling off to Rs 378.3 as of 10:10 a.m. Stocks of rival telecom operators including Idea Cellular and Reliance Communications traded with gains of between 3 percent and 5 percent.