By Vishal Sridhar and Devidutta Tripathy
BENGALURU/MUMBAI (Reuters) - India's Bharti Infratel Ltd (NS:BHRI) has agreed to merge with Indus Towers, in a deal that creates the world's No. 2 telecom tower company with an estimated equity value of $14.6 billion (10.47 billion pounds).
Seeking to capitalise on rapid growth in smartphone usage in the country, the transaction, which values Indus Towers at roughly $10 billion, will create an infrastructure giant with more than 163,000 towers, lagging only China Tower.
Top Indian telecoms carrier Bharti Airtel (NS:BRTI), the majority owner of Bharti Infratel, will be the biggest shareholder in the combined company followed by Vodafone Group Plc (L:VOD), the companies said in a joint statement on Wednesday.
Indus' two other main shareholders, Idea Cellular (NS:IDEA) 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 vicious price war in the world's second-biggest market by mobile phone users that has helped spur a rush of M&A activity, including a planned merger of Vodafone's Indian unit and Idea that threatens Bharti Airtel's position as India's biggest phone carrier.
Vodafone and Idea had flagged they would look at selling their stakes in Indus and other tower assets they separately own to help cut debt for the merged telecoms carrier.
The deal also comes a day after Bharti Airtel reported its smallest quarterly profit in 15 years, hit by the price war triggered by upstart rival Reliance Jio Infocomm which has upended the Indian telecoms market.
"With what is happening in the sector you should expect more consolidation, not only among carriers but also within the telecom infrastructure sector," said Jagannadham Thunuguntla, head of research at Centrum Broking in Mumbai.
Bharti Airtel shares closed 3.4 percent higher on Wednesday after the deal announcement. Bharti Infratel shares fell 1.1 percent.
DEAL CONTOURS
Under the deal, Bharti Infratel, which currently owns 42 percent of Indus Towers, will pay 1,565 of its own shares for each Indus Towers share, the companies said in a statement.
Bharti Airtel will hold between 33.8 percent to 37.2 percent of the combined business, whose name will remain Indus Towers. Vodafone, which will be issued new shares in exchange for its 42 percent stake, will gain between 26.7 percent and 29.4 percent.
Idea has the option of selling its 11.2 percent stake in Indus for about $1 billion or receiving new shares in the combined firm. Providence has the option to receive cash or shares for 3.35 percent of its 4.85 percent holding in Indus, with the remainder exchanged for shares in the combined firm.
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.
Bharti Airtel, Vodafone and Idea - the Indian market's three biggest phone carriers - got together in 2007 to form Indus Towers to lower costs as they focus on their core mobile services business. It is already the biggest telecom tower company in India which has about 400,000 towers.
Last November, American Tower (N:AMT) agreed to buy about 20,000 mobile phone towers from Vodafone and Idea for $1.2 billion, further expanding its footprint in India.
Reliance Jio is also in the process of buying towers from debt-laden Reliance Communications (NS:RLCM) as part of a broader deal.
The new Indus Towers board will have 11 members - three each from Bharti Airtel and Vodafone, one from KKR (N:KKR) or Canada Pension Plan Investment Board (CPPIB) as well as four independent members.
KKR and CPPIB last year bought a combined stake of more than 10 percent of Bharti Infratel.
The deal is expected to close before end-March next year.