The Aditya Birla group's wireless telephony firm Idea Cellular has agreed to buy Spice Communications in a three-stage deal in which minority shareholders of Spice would be given an option either to swap their shares for the Birla group firm or sell them in an open offer.
Sources close to the development said Idea would buy out B K Modi's 40.8 per cent shares in Spice Telecom for Rs 77 a share in the first stage of the agreement.
An open offer to Spice shareholders will follow in line with Securities & Exchange Board of India guidelines.
The 70,000 minority shareholders, who hold 138 million shares (or 20 per cent) in Spice, would be given an option either to tender shares in Idea's open offer for Spice or swap their shares for Idea at a ratio based on the price of Rs 158 for Idea and Rs 77 for Spice.
Details of the agreement were finalised at a meeting that concluded 2 am Friday between Aditya Birla group Chairman Kumar Mangalam Birla and Chairman of Spice Communications BK Modi at Taj's Wellington Mews in Mumbai. An announcement is expected early next week.
Modi, who holds 282.5 million shares, will get Rs 2,175 crore from the deal. The California-based industrialist will also take home a hefty fee for signing a non-compete agreement with Idea Cellular.
Under the agreement, Telekom Malaysia's subsidiary TM International, the 39.2 per cent shareholder in Spice, would be offered 20 per cent in Idea Cellular at Rs 158 a share.
The total cost to Idea Cellular for the acquisition would be around Rs 5,300 crore excluding the non-compete fees for which it has started raising debts from the bankers.
Idea Cellular shares would be offered to Telekom Malaysia through a preferential offer, sources added, and will not require an open offer for Idea Cellular.
Sources said the preferential issue to Telekom Malyasia will take two or three months to conclude since it would require permission from the Foreign Investment Promotion Board.
TM International will also sign a strategic agreement with Idea Cellular to roll out 3G services or next generation wireless services - as and when the sector is opened up for foreign players.
BK Modi's business outsourcing firm, Spice BPO will sign a strategic agreement with Idea-Spice combined entity for value-added services (VAS).
The Modi firm will also supply handsets that costs less than $15 to Telekom Malaysia, which operates in various emerging markets from Egypt to Bangladesh. Both Idea and Spice officials refused to comment on the transaction.
The Idea Cellular scrip closed flat at Rs 108.25 a share on Friday against its previous close of Rs 107.70. Spice Communications closed at Rs 61.75 a share, a 1.81 per cent rise on the Bombay Stock Exchange.
Who gets what
Birla buys Spice for Rs 77 a share from Modi & TMI gets shares in Idea Cellular at Rs 158 apiece
Minority Spice shareholders get option to sell shares or swap shares in Idea
BK Modi gets non-compete fees, contracts for BPO services
Idea plugs its Punjab, Karnataka network holes