Bharti Infratel and Indus Towers merger: Operational synergies, management structure & capital structure

The merged entity of Bharti Infratel and Indus Towers will be called Indus Towers. The new Indus Towers will be the largest tower company in the world outside China. Currently, Indus Towers operates in 15 telecom circles whereas Bharti Infratel operates in remaining 7 circles thereby creating a pan-India tower company expanding wireless broadband services using 4G/4G+/5G technologies.

The combined entity had over 163,000 towers and 367,000 tenancies as on 31 March 2018 and with revenues of $3.8 billion (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.

Operational Synergies: The combined entity will have operational synergies which includes: Benefits of scale for capex, both in terms of new tower roll-out and tower maintenance; Simplification of the organisational structure; and General and administrative cost efficiencies.

Management Structure: Bharti Airtel and Vodafone will have equal rights in the combined company. 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 chairman) will be independent. The management team will be confirmed prior to closing.

Capital Structure: 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 Rs. 5,600 crore ($0.8 billion) as on 31 March 2018.

If the transaction goes through, the combined company’s equity value would be Rs. 96,500 crore ($14.6 billion) based on the SEBI pricing guidelines for Bharti Infratel in relation to the proposed scheme as on 23 April 2018. 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.

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.

It is expected that the transaction will be complete before 31 March 2019 subject to approvals from regulatory authorities, including CCI, SEBI, NCLT, DoT (FDI approval), approval from Bharti Infratel’s shareholders, necessary corporate approvals from the companies involved, as well as closing conditions.