Bharti Infratel to merge with Indus, form $14.6 billion telecom tower giant

BENGALURU/MUMBAI (Reuters) - India’s Bharti Infratel Ltd () said it 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.

Seeking to capitalize 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 (), the majority owner of Bharti Infratel, will be the biggest shareholder in the combined company followed by Vodafone Group Plc (). Indus’ two other main shareholders, Idea Cellular () 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 sector 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.

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.

Bharti Airtel shares climbed on the deal to be up 3 percent in afternoon trade while shares in Bharti Infratel were trading 0.6 percent lower.

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.

The new Indus Towers board will have 11 members - three each from Bharti Airtel and Vodafone, one from KKR () or Canada Pension Plan Investment Board 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.

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.

($1 = 66.5675 Indian rupees)