Mumbai: Aditya Birla group firm Idea Cellular along with Telekom Malaysia International (TMI), TMI Mauritius, TM International Berhad and Green Acre Agro Services have made an open offer to acquire a further 20 per cent stake in Spice Communications.

The open offer for acquiring up to 137,985,050 equity shares of Spice Communications at Rs77.30 each, for around Rs1.066.63 crore, will open on 22 August and close on 11 September, according to a filing with the Bombay Stock Exchange.

Idea Cellular, India's fifth-largest mobile operator, had, last week struck a three-way deal to acquire Spice. Under the deal, Idea would buy Spice Group's 40.8 per cent stake in Spice Communications and merge it with itself through a share swap. The deal is worth a total Rs2,720 crore, excluding the non-compete fees.

Under the deal, Idea will also acquire Telekom Malaysia International's 39.2 per cent stake in Spice and offer the Malaysian firm a fifth of Idea in a preferential allotment.

After the merger, Telekom Malaysia International will hold five per cent stake in Idea, in exchange for its existing 39.2 per cent stake in Spice. Later, Idea will issue preferential shares to Telekom Malaysia International at Rs156.96 per share, raising Rs7,294.4 crore. Post-issue, TMI will hold close to 20 per cent in Idea.

Spice shareholders would get 49 Idea shares for every 100 Spice shares held.

The merger would make  Idea a bigger player in the India's fiercely competitive mobile communications space. 

The non-compete clause in the agreement would effectively bar any competition from Spice in the mobile communication space at least in the next three years.

The deal also brings Idea cash for future operations on a net basis (after considering cash outflow to buy Spice promoters' stake, a subsequent buyback offer and cash inflow from stake sale to TMI). This would leave Idea with a net cash inflow of over Rs3,500 crore.

The deal also boosts Idea's current subscriber base by 17 per cent to 306 million. Idea's overall market share would grow from the current 9.6 per cent to 11.2 per cent. It will also get entry into the Karnataka and Punjab telecom circles, where it doesn't have spectrum.

Idea, which has better operational efficiency than Spice, plans to invest over Rs10,000 crore for future expansion. This could result in higher subscriber growth and improved profitability post merger.

The equity dilution on a net basis may depress Idea's EPS in the short run. Combined with Idea's low market valuation of Rs97.5, the deal makes Idea more expensive on the returns perspective.

But, Spice's operations are expected to turn around over the medium term and add substantially to Idea's overall performance in the future.