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Asian Journal of Management Cases
DOI: 10.1177/097282010900600203
Asian Journal of Management Cases
R. Srinivasan
Idea Cellular’s Acquisition of Spice Telecom
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Cases
I
DEA CELLULAR’S ACQUISITION OF SPICE TELECOM
R. Srinivasan
The case discusses the antecedents before the merger between Idea Cellular Ltd and
Spice Telecom. It describes the evolution, fast growth and structure of the Indian
mobile telecommunications industry; provides a brief profi le of the fi rms involved;
describes the merger/deal and highlights the issues involved (especially regulatory) in
completing the merger. Idea Cellular Ltd., part of the diversifi ed Aditya V. Birla Group,
had announced its intent to acquire Spice Telecom, an independent mobile services
company that was operating in two circles—Punjab and Karnataka, but held licenses in
multiple circles. As part of the deal, TMI (a subsidiary of Telekom Malaysia) swapped
its stake in Spice Telecom to acquire stake in Idea Cellular. However, the regulator,
Department of Telecommunications (DOT) raised objections on the merger citing the
revised M&A guidelines that restricted a company from owning more than a 10 per cent
stake in two licenses in the same circles. This case provides learners with opportunities
to (
a) appreciate the complementarities of the M&A intent of all the fi rms involved
and (
b) analyze the deal structure and critically evaluate the options before the two
companies in addressing the DOT objections.
Keywords:
Idea Cellular, Spice Telecom, TM International, merger, Indian Telecom
Industry, regulation.
I
NTRODUCTION
On 25 June 2008, Idea Cellular Ltd, part of the Aditya Birla Group (www.adityabirla.com)
announced that it would acquire industrialist BK Modi’s 40.8 per cent stake in the mobile
operator Spice Communications for a consideration of over Rs 2,700 Crores (commonly
used in India and Pakistan, this unit of value is equal to ten million rupees). The deal
was also to involve Telekom Malaysia International (TMI), then a substantial stakeholder
A
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S
AGE PUBLICATIONS LOS ANGELES/LONDON/NEW DELHI/SINGAPORE/WASHINGTON DC
DOI:
10.1177/097282010900600203
This case was written by Associate Professor R. Srinivasan, Corporate Strategy and Policy area,
Indian Institute of Management, Bangalore.
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94 R. S
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in Spice Communications, wherein both Idea and TMI would make an open offer for
an additional 20 per cent stake in Spice’s post-acquisition. Mr Sanjeev Aga, Managing
Director, Idea Cellular was wondering how they would overcome the Department of Telecommunications
(DOT) restrictions that arose from the revised mergers and acquisitions
guidelines (issued on 22 April 2008).
Mr Kumar Mangalam Birla, Chairman, Idea Cellular Ltd, said,
This announcement marks a major step in the Aditya Birla Group’s telecom business.
Idea has performed strongly, but I believe its best lies ahead. Idea will benefi t operationally
by leveraging synergies with TMI which will be a signifi cant shareholder in
our company. Further, I look forward to welcoming colleagues from Spice into the
Idea family, and indeed the over 100,000 strong Aditya Birla Group. Together, we aim
to grow a top class organization for the service of our subscribers.
1
Mr B K Modi, Global Chairman, Spice Group said,
The divestment from Spice Communications is a very signifi cant strategic decision
for the Group. This divestment will enable Spice to redeploy resources and strengthen
the Group’s mobile ecosystem businesses led by Mobile VAS, Mobile Devices, Telecom
Retail and Customer Support. This transaction makes Spice an operator-agnostic
services provider, where we will continue to provide services in the Indian mobile
telephony market. It also gives us the opportunity to strengthen relationships with
Idea Cellular and Telekom Malaysia International as partners in India and Asia Pacifi c,
respectively.
2
Mr Sanjeev Aga, Managing Director, Idea Cellular Ltd said, ‘The strategic import of
this move travels beyond Punjab and Karnataka. By the end of the year, the Idea
yellow
will increasingly colour the Indian landscape’.
3 With the DOT raising objections on the
merger citing the revised mergers and acquisitions guidelines (issued on 22 April 2008)
that restricted a company from owning more than 10 per cent stake in two licensees in the
1
Sourced from the website of Aditya Birla Nuvo on the Internet http://www.adityabirlanuvo.com/media/
press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY=, on 17 July 17 2008.
2
Sourced from the website of Spice Group on the Internet http://spicecorp.in/spicegroup.html, on
17 July 2008.
3
Sourced from the website of Aditya Birla Nuvo on the Internet http://www.adityabirlanuvo.com/media/
press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY=, on 17 July 2008.
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same service area, it remained to be seen, whether the deal would go through, whether
the open offer would be successful, and whether Idea would be ‘Spiced up’ suffi ciently
to acquire a national footprint.
T
HE INDIAN MOBILE TELECOMMUNICATIONS INDUSTRY4
The mobile telecommunications industry received a kick-start with the Government of
India’s (GOI) New Telecom Policy (NTP) in 1994. Though NTP ’94 envisioned an increase
in tele-density in the country, it ensured provision of the world-class telecom services to
those who could afford them. Private players were provided licenses to operate mobile
services in the four metropolitan cities of India, namely Delhi, Mumbai, Chennai and
Kolkata. The initial licensing restricted the number of operators in each license area,
also known as circles,
5 to two, and the licenses were issued for a period of ten years for
a fi xed license fee. By 1995, the mobile licenses were extended to eighteen circles (except
Jammu & Kashmir and Andaman & Nicobar Islands), and by 1999 all twenty-three
circles were licensed. Initially, mobile phones and their associated services were very
expensive.
The Telecom Regulatory Authority of India (TRAI) was formed in 1997 to discharge
regulatory functions and to ensure fair competition and protection of consumer interests.
Furthermore, the government carved out the Department of Telecom Services (DTS) from
the Department of Telecommunications (DOT). DOT was responsible for policy, licensing,
Research and Development (R&D), and administration of laws, whereas DTS was
responsible for DOT’s previous telecom business. The Telecom Commission (TC) set up
in 1989, coordinated the activities of DOT and DTS. The Telecom Dispute Settlement and
Appellate Tribunal (TDSAT) were separated from TRAI in the year 2000, to distinguish the
roles of the regulator (TRAI) and the adjudicator (TDSAT). The structure of the telecom
sector is presented in Exhibit 1.
4
Sourced from the websites of TRAI (www.trai.in), COAI (www.coai.in), Sarvani, V and Dutta, S. (2004).
Innovations in the Indian Telecom Industry, Case (3043491) published by the ICFAI Center for Management
Research, Hyderabad, India; Padmanabhan, BS. (2003) The Telecom Journey, Frontline, Vol. 20, Issue 20,
17 September–10 October 2003, accessed from the Internet http://www.hinduonnet.com/fl ine/fl 2020/stories/
20031010005111800.htm on 17 July 2008; and Chourasia, AK, and Roy, A. (2004). Indian Telecom Industry,
Case (2040181) published by the ICFAI Press, Hyderabad, India.
5
The Indian telecommunications network was divided into 23 geographical license areas known as telecom
circles or circles, roughly corresponding to state boundaries and metro cities. The four large metropolitan
cities of Mumbai (erstwhile Bombay), Kolkata (erstwhile Calcutta), Chennai (erstwhile Madras), and Delhi
were independent license areas due to their size.
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Government of India realized that the demand estimates made by the fi rst few cellular
operators were unrealistic and since the consumers were signifi cantly price-sensitive, the
market did not grow as anticipated. In 1999, the market exploded when the government
announced the New Telecom Policy (NTP). The tariffs fell signifi cantly, due to the shift
from a fi xed license system to a revenue sharing model. Under the new model, the cellular
operators were to pay 17 per cent of their annual revenues and the fi xed line operators
8–12 per cent of their revenues as license fees to the Department of Telecommunications
(DOT). The NTP’ 99 allowed both fi xed and cellular operators to charge long distance tariffs
within the circle along with other services (voice, non-voice messages and data services)
without paying additional license fees. The GOI released more spectrum in the 1,800 MHz
band in 2001. More and more competitors entered the market when private participation
in National Long Distance (NLD) and International Long Distance (ILD) was allowed.
DTS was renamed as Bharat Sanchar Nigam Limited (BSNL) after its corporatization. In
2001–02, MTNL (Delhi and Mumbai) and BSNL (rest of India) entered mobile services
as the third mobile operators in the country. Competition further intensifi ed with the
entry of a fourth operator in 2002–03, and introduction of the ‘Calling Party Pays’ (CPP)
scheme.
6 Tariffs continued to fall, and the subscriber base dramatically increased with
the introduction of pre-paid schemes.
Over the years, the Indian mobile phone industry grew substantially. As can be seen
from Exhibits 2 and 3,
7 the growth of mobile phones had driven the growth of the telecom
industry in India.
The growth had largely been attributed to the rapidly falling tariffs and increasing competition
in the industry. Gross revenues for the sector had grown at a compound annual
growth rate of about 21 per cent in 2006–07, and were at US$ 21 billion, accounting for about
3 per cent of India’s GDP.
8
6
Prior to introduction of CPP, consumers were also charged for receiving calls on their mobile phones.
7
Sourced from the annual report of Telecom Regulatory Authority of India (TRAI), 2006–07, available on
the Internet at http://www.trai.gov.in/annualreport/AReport2006-07English.pdf on 17 July 2008; and the
TRAI report on service performance indicators, 8 July, available on the internet at http://www.trai.gov.
in/trai/upload/Reports/42/reportQE3july08.pdf, on 17 July 2008.
8
Sourced from the annual report of the Department of Telecommunications (DOT), 2006–07, available
on the internet, at http://www.dot.gov.in/annualreport/2008/English%20annual%20report%202007-08.pdf,
on 17 July 2008; page iv.
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The growth in mobile telecommunications also contributed to the increase of teledensity
(number of phones per 100 people) in India.
9 However, the rural tele-density was
far below the expected standards at only 8.35 phones per 100 people, as on December
2007 (see Exhibit 4).
In order to promote rural telephony, the GOI set up the Universal Service Obligation
Fund (USOF) in December 2003. Resources for the fund were being raised through a Universal
Service Levy (USL) at the rate of 5 per cent of the adjusted gross revenue (AGR)
of all telecom service providers (excluding pure value added service providers), as well
as the GOI. The USOF was used (among other things) to provide for the operation and
maintenance of village public telephones (VPTs), provision of additional rural community
phones apart from the one VPT in every revenue village, provision of household telephones
in rural and remote areas, creation of infrastructure for provision of mobile services in
rural and remote areas, and provision of broadband connectivity to villages in a phased
manner. As on 31 December 2007, about 527,000 VPTs were being supported by the
USOF. Under the USOF, there were also plans to provide subsidies to set up and manage
7,871 towers (infrastructure sites) in 500 districts over twenty-seven states for providing
mobile services in specifi ed rural and remote areas, where there was no fi xed, wireless,
or mobile coverage. The infrastructure would be shared by the three service providers.
An additional 11,000 towers were envisaged to be installed in the second phase of the
scheme by March 2010.
10 The subscriber bases and market shares of the major players in
the mobile phone industry are given in Exhibit 5.
11 Even though there was a signifi cant
policy direction towards improving the rural telephony, penetration remained largely
poor. Exhibit 5 highlights the rural subscriber bases of the major mobile companies.
As the subscriber base continued growing, and the tariffs fell (see Exhibit 6), it was
fast becoming a struggle for survival for the small players in the industry. As the average
subscriber outgoing (rentals + call charges) per minute reduced consistently (despite
increasing usage), economies of scale became signifi cant in the industry.
9
Sourced from the annual Report of Department of Telecommunications (DOT), 2006–07, available on
the internet at http://www.dot.gov.in/annualreport/2008/English%20annual%20report%202007-08.pdf,
on 17 July 2008.
10
Sourced from the annual report of the Department of Telecommunications (DOT), 2006–07, available on
the internet, at http://www.dot.gov.in/annualreport/2008/English%20annual%20report%202007-08.pdf,
on 17 July 2008.
11
Data sourced from the annual report of Telecom Regulatory Authority of India (TRAI), 2006–07, available
on the Internet at http://www.trai.gov.in/annualreport/AReport2006-07English.pdf, on 17 July 2008; and the
TRAI performance indicators reports published quarterly (www.trai.gov.in).
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98 R. S
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The early 2000s had seen another trend—foreign investments in the mobile telecom
industry. In February 2004, the DOT issued guidelines on M&A in the mobile telecom
industry. The important provisions were as follows:
12
Prior approval of DOT will be necessary for the merger of the license.
The fi ndings of DOT would normally be given within four weeks of the application.
Merger of licenses will be restricted to the same service area.
There should be a minimum of three operators in a service area, consequent upon
such merger.
Any merger, acquisition or restructuring, leading to a monopoly market situation
(defi ned as 67 per cent market share) in the given service area shall not be
permitted.
Consequent upon merger of licenses, the merged entity shall be entitled to the total
amount of spectrum held by the merging entities, subject to the condition that after
merger, the amount of spectrum shall not exceed 15 MHz per operator per service
area for metros and Category A service areas, and 12.4 MHz per operator per service
area in Category B and Category C service areas.
In case the merged entity becomes a signifi cant market power (SMP) (defi ned as
30 per cent or more market share) post merger, then the extant rules and regulations
applicable to SMPs would also apply to the merged entity.
On 2 April 2008, DOT issued revised guidelines for intra-service merger of cellular
mobile telephone service (CMTS) and unifi ed access services (UAS) licenses.
13 As per the
merger guidelines, the market power of the combined entity would be calculated using
market shares based on both subscriber base as well as adjusted gross revenue of the
licensee. The guidelines also stated that a telecom company can sell equity to another
company only after three years of getting a license. The substantial equity clause in the
revised guidelines stated that:
No single company/legal person, either directly or through its associates, shall have
substantial equity holding in more than one LICENSEE Company in the same service
12
Source: Banka, Sanjay (2006). Mergers & Acquisitions (M&A) in the Indian Telecom Industry – A study,
The Chartered Accountant pp. 927–941. Available on the Internet http://www.icai.org/icairoot/publications/
complimentary/cajournal/dec06/927-941.pdf, on 17 July 2008.
13
The full guideline is available on the Internet http://www.dot.gov.in/as/2008/M&A%20Guidelines%
20issued%20on%2022-4-2008.pdf, on 17 July 2008.
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area for the Access Services, namely, Basic, Cellular, and Unifi ed Access Service.
‘Substantial equity’ herein will mean an equity of 10 per cent or more’. A promoter
company/legal person cannot have stakes in more than one LICENSEE Company for
the same service area. (DOT guideline No.20-100/2007-AS-I, pages 3–4)
DOT also issued guidelines on foreign equity participations and management control
of telecom companies. As in February 2006, the FDI limit in the telecom sector had
been raised to 74 per cent. Global telecom giants that had entered the market through
FDI, JVs, and minority equity participations in the country included Vodafone, AT&T,
Hutchinson Whampoa, Telekom Malaysia, SingTel, and Telstra Australia. A high growth
economy coupled with signifi cantly low tele-density made India an attractive investment
destination for global telecom majors.
T
HE FIRMS INVOLVED
The following section briefl y describes the companies involved in the deal. The latest available
summarized fi nancial results of the three companies
14 are provided in Exhibit 7.
Idea Cellular
Incorporated in 1995 as Birla Communications Limited, the company acquired licenses
for providing GSM-based telecom services in Gujarat and Maharashtra circles. Having
entered into a joint venture with AT&T Corporation, the company changed its name to
Birla AT&T in 1996, and commenced operations in Gujarat and Maharashtra circles in
1997. A series of mergers and acquisitions, as well as fresh licenses ensured that the company
expanded its footprint across India through the next decade. Birla AT&T merged
with Tata Cellular in the year 2000, thereby acquiring the license to operate in Andhra
Pradesh circle. Its new name was Birla Tata AT&T. The following year (in 2001), the
acquisition of RPG Cellular Ltd, provided the company with the license for the Madhya
Pradesh (and Chhattisgarh) circle. In 2002, the company launched the brand ‘Idea’ for its
mobile telephone services and changed the name of the company to Idea Cellular Ltd.
In 2004, Idea Cellular acquired Escotel Mobile Communications Ltd (which was renamed
as Idea Mobile Communications Ltd). In 2006, it acquired Escorts Telecommunications
14
Financial statements of Idea Cellular and Spice Communications were sourced from the Capital Line
database (www.capitalline.com), and that of Telekom Malaysia from the company’s annual report, available
on the company’s website http://www.tmigroup.com on 17 July 2008.
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100 R. S
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Limited (subsequently renamed as Idea Telecommunications Limited); and in 2007, it
merged all its subsidiaries into Idea Cellular Limited. Idea Cellular became part of the
Aditya Birla Group in 2006, when the Tata group transferred its entire shareholding to
the Aditya Birla Group. The Aditya Birla Group is a US$ 24 billion, Fortune 500 global
corporation with a market capitalization of over US$ 31.5 billion, with over 50 per cent of
its revenues from overseas operations (for more details, see the group website at www.
adityabirla.com). The company was subsequently listed in the Bombay Stock Exchange
(BSE) and the National Stock Exchange (NSE) through an Initial Public Offering (IPO). As
on July 2008, Idea Cellular had licenses to operate in all twenty-two circles, and offered
its services in Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Kerala,
Madhya Pradesh (and Chhattisgarh), Maharashtra, Rajasthan, Uttar Pradesh (East), and
Uttar Pradesh (West).
15
Spice Communications Limited
Spice Communications Limited was incorporated as Modicom Network Private Limited in
March 1995 as a private limited company. The company went public in 1999 and changed
its name to Spice Communications Limited. Subsequently, Spice became a private limited
company in 2003, and was again listed in 2006. The company is listed in the Bombay
Stock Exchange (BSE).
Spice Communications Limited was the sixth largest private GSM operator in India with
mobile service operations in the states of Punjab and Karnataka. Spice Communications
was owned by Modi Wellvest Private Limited (promoted by Mr Dilip Modi and Super
Infosys) with 40.80 per cent equity holding and 39.20 per cent shareholding by Telekom
Malaysia Berhad through TMI India Limited, Mauritius, a wholly owned subsidiary of
Telekom Malaysia’s international investment holding company, TM International Sdn
Bhd.
16 As of 30 April 2008, Spice Communications with a 4.4 million subscriber base was
the second largest player in Punjab with a market share of 22.3 per cent and fi fth largest
player in Karnataka, with a combined market share of 15.1 per cent in both Punjab and
15
Sourced from the company website on the Internet http://www.ideacellular.com/IDEA.portal?_
nfpb=true&_pageLabel=IDEA_Page_AboutIdea and http://www.ideacellular.com/IDEA.portal?_
nfpb=true&portlet_MyIdeaController_5_actionOverride=%2FIDEA%2Fcontent%2FmyIdea%2FdisplayCo
ntent&_windowLabel=portlet_MyIdeaController_5&portlet_MyIdeaController_5displayParam=history&_
pageLabel=IDEA_Page_AboutIdea on 17 July 2008.
16
Sourced from the website of Spice Communications on the Internet http://www.spiceindia.com/investor_
relations/corporate_profi le.asp on 17 July 2008.
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Karnataka service areas.
17 Spice Communications has been credited with a variety of unique
and innovative value added services in cellular telephony services.
TM International
TMI was incorporated in Malaysia in 1992 as a private limited company under the name
Telekom Malaysia International Sdn Bhd, and in 2001 it changed its name to TM International
Sdn Bhd. The company went public in 2007. It was listed in Bursa Malaysia in
April 2008. It was among the top ten largest public limited companies in Malaysia by
market capitalization, and the fi rst listed pan-Asian pure cellular service provider in the
region.
18
TM International was a leader in the Asian mobile communications market with signifi -
cant presence through its subsidiaries and associates in Malaysia (brand name: Celcom),
Indonesia (brand name: XL), Sri Lanka (brand name: Dialog), Bangladesh (brand name:
AKTEL), Cambodia (brand name: HELLO), India (brand name: Spice), Singapore (brand
name: M1), and Iran (Esfahan) (brand name: MTCE). The group including subsidiaries
and associates, had 40 million mobile subscribers in Asia, and employed more than 13,000
people across ten countries in the region.
19
Deal Structure
20
Idea Cellular acquired BK Modi’s 40.8 per cent stake in Spice Communications for
Rs 21.760 billion at Rs 77.30 per share; plus an additional Rs 5.43978 billion as a noncompete
fee. The non-compete fee was pegged at 24.99 per cent, just short of the
SEBI limit of 25 per cent of the total deal value. With the deal at Rs 27.20 billion, Spice
17
Sourced from the websites of Spice Corp Ltd and Aditya Birla Nuvo on the Internet http://spicecorp.
in/spice_telecom.asp and http://www.adityabirlanuvo.com/media/press_releases/pressrelease.
aspx?ID=ZhDd6fXWtEY=, on 17 July 2008.
18
Sourced from the website of TM International on the Internet http://www.tmigroup.com/about-us on
17 July 2008.
19
Sourced from the website of TM International on the Internet http://www.tmigroup.com/about-us on
17 July 2008.
20
Sourced from the websites of Aditya Birla Nuvo. Spice Group and Spice Communications on the Internet
http://www.adityabirlanuvo.com/media/press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY=, http://
spicecorp.in/spicegroup.html , and http://www.spiceindia.com/investor_relations/corporate_profi le.asp on
July 17, 2008; and Philip, Siddharth (2008), Spicing up Idea: Idea Cellular’s acquisition will strengthen its
position, Business India, 13 July 2008, p. 114.
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Communications was valued at Rs 68 billion. The offer price of Rs 77.30 per share was
Rs 5.15 higher than the closing price before the deal was announced.
Idea Cellular and Telekom Malaysia International (TMI) announced that they would
make an open offer for a further 20 per cent stake in Spice Communication at the same
price, i.e. Rs 77.30 per share. Consequent to the approval of both the boards for the
merger of Spice Communications into Idea Cellular and with support from TMI (who held
39.20 per cent of Spice Communications), the swap ratio for the merger was announced
at 49 shares of Idea Cellular for every 100 shares of Spice Communications. Idea Cellular
would also make a preferential allotment to Telekom Malaysia 464.73 million equity
shares at a price of Rs 156.96 per Idea share, representing 14.99 percent of Idea’s equity
capital post allotment. Idea’s stake sale to Telekom Malaysia would infuse Rs 75 billion
of cash. Of this, Rs 30 billion would be used for fi nancing the acquisition of BK Modi’s
stake and removing Spice Communication’s debt of about Rs 10 billion; and the remaining
Rs 45 billion would be used to retire debt on Idea Cellular’s books. Idea Cellular was
also planning to sell 20 per cent of its stake in one of its subsidiaries for Rs 24 billion to
contribute to removing the Rs 70 billion debt on Idea Cellular’s books, thereby making
it entirely debt-free. Mr KM Birla, Chairman of Idea Cellular, reiterated that even after
regulatory approvals and merger of Spice Communication with Idea Cellular, Telekom
Malaysia will remain a minority partner with a single seat on the Idea Cellular board,
and that under no circumstances will their stake go beyond 20 per cent. Post merger,
the promoter’s (Aditya Birla Group) shareholding was expected to be around 48 per cent,
Telekom Malaysia’s shareholding at 20 per cent; and the remaining 32 per cent was to
be held by others.
21
T
HE WAY FORWARD: ANTICIPATED SYNERGIES
The acquisition of Spice Communications would make Idea Cellular the fi fth largest
mobile services company in India and the fourth largest GSM services provider, after
Bharti Airtel, Reliance Communications (CDMA based services), Vodafone, and Bharat
Sanchar Nigam Limited (BSNL). Idea Cellular would add about 4.5 million subscribers
in the fast growing Punjab and Karnataka circles (representing 11 percent of India’s total
wireless subscribers and 15.1 per cent market share in the two service areas) to Idea
21
Sourced from The Hindu Business Line (2008). Idea Cellular snaps up Spice, The Hindu Business Line,
26 June 2008, accessed from the Internet http://www.thehindubusinessline.com/2008/06/26/stories/
2008062652330100.htm on 17 July 2008.
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Cellular’s 26 million subscribers (as on May 2008), expanding its services to eleven out
of twenty-two circles as well as enhancing its national market share to 11.1 per cent post
merger from its current 9.5 per cent.
22 Post merger, Idea would become the No. 1 service
provider in three service areas, and would be in the top three in fi ve more service areas.
Also, Idea’s operations in the 900 MHz GSM spectrum band would increase from seven
service areas to nine service areas, driving scale economies and operational synergies,
resulting in lower operating and capital expenditure.
23 After this acquisition, Idea Cellular
hoped to expand its businesses in Mumbai, Bihar, and Jharkhand by September 2008,
and Tamil Nadu (including Chennai) and Orissa by December 2008; and have a pan-India
presence by the end of 2009, taking Idea’s footprints to cover approximately 90 per cent
of the country’s telephony potential.
24
Exhibit 8 provides the stock prices of Idea Cellular and Spice Communications around
the date of the merger announcement.
25
The transaction provided Idea Cellular with suffi cient cash to fi nance the Spice Communications
acquisition, retire debt on both Spice Communications and Idea Cellular
books, and provide capital for supporting Idea’s aggressive investment plans in their new
service areas (where they were currently rolling out their services including Mumbai,
Bihar, Jharkhand, Orissa, Tamil Nadu, and Chennai), as well as in service areas where
they would begin operations soon when they receive spectrum (including Kolkata, West
Bengal, Assam, North East, and Jammu & Kashmir).
The presence of Telekom Malaysia as a shareholder in Idea Cellular would also help Idea
leverage TMI’s expertise in operating 3G services; and superior market positions in over
ten principal Asian markets, including market leadership in neighbouring countries like
Sri Lanka and Bangladesh. Possible synergies between TMI and Idea included cooperation
in international traffi c and roaming, and mobile value added services.
26
22
Sourced from The Hindu Business Line (2008). Idea Cellular snaps up Spice, The Hindu Business Line,
26 June 2008, accessed from the Internet http://www.thehindubusinessline.com/2008/06/26/stories/
2008062652330100.htm on 17 July 2008; and Philip, Siddharth (2008), Spicing up Idea: Idea Cellular’s acquisition
will strengthen its position, Business India, 13 July 2008, p. 114.
23
Sourced from the website of Aditya Birla Nuvo on the Internet http://www.adityabirlanuvo.com/media/
press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY= on 17 July 2008.
24
Sourced from the website of Aditya Birla Nuvo on the Internet http://www.adityabirlanuvo.com/media/
press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY= on 17 July 2008.
25
Sourced from the Capital Line database (www.capitalline.com).
26
Sourced from the website of Aditya Birla Nuvo on the Internet http://www.adityabirlanuvo.com/media/
press_releases/pressrelease.aspx?ID=ZhDd6fXWtEY= on 17 July 2008.
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104 R. S
RINIVASAN
A
SIAN JOURNAL OF MANAGEMENT CASES, 6(2), 2009: 93–118
However, with DOT raising questions of the deal violating the revised merger guidelines
of sales of equity within three years of obtaining a license, and the substantial equity
clause of a telecom license, where one service provider cannot have more than 10 per cent
of the equity of another provider in the same service area, the deal could be in trouble.
DOT offi cials said that Spice Communications was willing to surrender the licenses for
Delhi, Andhra Pradesh, Haryana and Maharashtra circles that it acquired in January 2008.
However, there was no provision for surrendering of licenses back to DOT in the license
agreement.
27 Another option available with Idea Cellular was to enter into a strategic alliance
with Spice Communications until the three years (from obtaining license) required
for Spice to sell their license were complete.
Exhibit 1
Structure of the Indian Telecom Sector
Source:
Case writer’s Notes.
27
DasGupta, Surajeet and Rajesh Kurup, Idea-Spice deal comes under DOT scanner, The Business Standard,
21 July 2008, available on the Internet at http://business-standard.com/common/storypage_c.php?leftnm=
10&autono=329252, on 21 July 2008.
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I
DEA CELLULAR’S ACQUISITION OF SPICE TELECOM 105
A
SIAN JOURNAL OF MANAGEMENT CASES, 6(2), 2009: 93–118
Exhibit 2
Growth of the Indian Mobile Telecommunications Industry
Year
Effective Charge
(in Rs/min)
Wireless Subscriber
Base (in Millions)
Total Subscriber
Base (in Millions) Major Industry Changes
1998 14.00 0.88 18.68
1999 14.00 1.20 22.81 NTP ‘99
2000 6.00 1.88 28.53
2001 3.58 3.58 36.29 3rd operator introduced
2002 2.00 6.50 44.97 4th operator introduced
2003 1.60 13.00 54.62 CPP introduced
2004 0.44 33.69 76.54 ADC reduced
2005 0.40 52.33 98.41
2006 90.14 140.32
2007 165.11 205.86
2008 261.07 300.49
Source:
Annual report of Telecom Regulatory Authority of India (TRAI), 2006–07, available at http://www.
trai.gov.in/annualreport/AReport2006-07English.pdf (accessed on 17 July 2008).
Exhibit 3
Growth of the Indian Mobile Telecommunications Industry
Source:
The TRAI report on service performance indicators, July 2008, available at http://www.trai.gov.
in/trai/upload/Reports/42/reportQE3july08.pdf (accessed on 17 July 2008).
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Exhibit 4
Growth in Tele-density
Source:
Annual Report of Department of Telecommunications (DOT), 2006–07, available at http://www.dot.gov.in/
annualreport/2008/English%20annual%20report%202007-08.pdf (Accessed on 17 July 2008).
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Exhibit 5
Subscriber Base and Market Shares
Company
Licensed
service areas
No of
circles Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08
Bharti
Airtel
(GSM)
All India 23
Subscribers 27.06 31.97 37.14 42.70 48.88 55.16 61.98
Market share (%) 20.89 21.37 22.50 23.09 23.38 23.60 23.74
Rural subscribers 6.77 8.11 9.80 13.31 15.76
Reliance
(CDMA +
GSM)
All India 23
Subscribers 25.98 29.98 30.98 31.88 36.32 40.96 45.79
Market share (%) 20.05 20.04 18.76 17.24 17.37 17.53 17.54
Rural subscribers 9.48 4.42 6.11 7.46 8.95
BSNL
(GSM)
All India
(except DEL
and BOMi)
21
Subscribers 23.70 26.60 28.01 32.05 35.66 39.96 44.13
Market share (%) 18.29 17.78 16.97 17.33 17.06 17.10 16.90
Rural subscribers 4.05 9.93 9.73 11.38 13.14
Vodafone
Essar
(GSM)
All India
(except MP)
a 16
Subscribers 20.36 23.31 26.44 30.75 34.13 36.81 40.79
Market share (%) 15.72 15.58 16.01 16.63 16.32 15.75 15.62
Rural subscribers 6.89 8.40 10.87 11.63 13.74
Tata
(CDMA)
All India
(except
Assam, NE,
J&K)
20
Subscribers 12.38 14.45 16.02 17.32 19.5 21.74 24.33
Market share (%) 9.56 9.66 9.70 9.37 9.33 9.30 9.32
Rural subscribers 0.95 0.98 1.04 1.05 1.55
IDEA
(GSM)
DEL, BOM,
MH, GJ,
AP, KL, HR,
UP-W, UP-E,
RJ, MP, HP,
Bihar
b
11
Subscribers 10.36 12.44 14.01 16.13 18.67 21.05 24.00
Market share (%) 8.00 8.31 8.49 8.72 8.93 9.01 9.19
Rural subscribers 3.01 3.31 3.74 4.45 5.40
Aircel
(GSM) All India
c 9
Subscribers 3.80 4.51 5.51 6.77 8.04 9.43 10.61
Market share (%) 2.93 3.01 3.34 3.66 3.85 4.04 4.06
Rural subscribers 1.66 1.89 2.28 2.82 3.29
(
Exhibit 5 continued)
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Company
Licensed
service areas
No of
circles Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08
Spice
(GSM) KA, PJ 2
Subscribers 2.43 2.60 2.94 3.17 3.48 3.80 4.21
Market share (%) 1.70 1.64 1.65 1.52 1.43 1.37 1.35
Rural subscribers 0.33 0.00 0.00 0.00 0.00
MTNL
(GSM +
WLL)
DEL, BOM 2
Subscribers 2.20 2.45 2.73 2.81 2.99 3.20 3.53
Market share (%) 1.88 1.74 1.78 1.71 1.66 1.63 1.61
Rural subscribers 0.00 0.37 0.37 0.37 0.46
BPL
(GSM) BOM 1
Subscribers 1.05 1.06 1.07 1.07 1.15 1.24 1.29
Market share (%) 0.81 0.71 0.65 0.58 0.55 0.53 0.49
Rural subscribers 0.00 0.00 0.00 0.00 0.00
HFCL
(CDMA) PJ 1
Subscribers 0.15 0.15 0.15 0.15 0.15 0.25 0.30
Market share (%) 0.12 0.10 0.09 0.08 0.07 0.11 0.11
Rural subscribers 0.00 0.003 0.003 0.002 0.002
Shyam
(CDMA) RJ 1
Subscribers 0.08 0.09 0.10 0.10 0.10 0.10 0.11
Market share (%) 0.06 0.06 0.06 0.05 0.05 0.04 0.04
Rural subscribers 0.00 0.002 0.001 0.001 0.001
Total
(All India)
Subscribers 129.55 149.61 165.1 184.9 209.07 233.7 261.07
Market share (%) 100 100 100 100 100 100 100
Rural subscribers 33.14 37.415 43.944 52.473 62.293
Source:
Data sourced from the annual report of Telecom Regulatory Authority of India (TRAI), 2006–07, available on
the Internet at http://www.trai.gov.in/annualreport/AReport2006-07English.pdf, on July 17 2008; and the TRAI
performance indicators reports published quarterly (www.trai.gov.in).
Notes:
Abbreviations used in licensed service areas (names of states/circles): MP: Madhya Pradesh; DEL: Delhi; BOM:
Bombay/Mumbai; NE: North Eastern States; MH: Maharashtra; GJ: Gujarat; AP: Andhra Pradesh; KL: Kerala;
HR: Haryana; UP-W: Uttar Pradesh – West; UP-E: Uttar Pradesh – East; RJ: Rajasthan; HP: Himachal Pradesh;
KA: Karnataka; PJ: Punjab.
Subscribers and rural subscribers are mentioned in millions.
a
Vodafone (formerly Hutch) was yet to start services in HP, Bihar, OR, AS, NE, and J&K.
b
Idea was yet to start services in Mumbai and Bihar.
c
Aircel was yet to start services in Delhi, Mumbai, Kolkatta, MH, GJ, AP, KA, KL, PJ, HR, UP-W, UP-E, RJ and MP.
(
Exhibit 5 continued)
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Exhibit 6
Usage Patterns and Subscriber Outgo
Usage Pattern (Minutes Per Subscriber Per Month) Average Subscriber Outgo (Rs Per Minute)
GSM CDMA GSM CDMA
Year
OG
MOU
IC
MOU
TOTAL
MOU
OG
SMS
OG
MOU
IC
MOU
TOTAL
MOU
OG
SMS
POST
PAID
PRE
PAID TOTAL
PRE
PAID
POST
PAID TOTAL
Mar 08 236 257 493 26 180 184 364 16 0.94 0.92 0.92 0.74 0.94 0.79
Dec 07 221 243 464 28 189 186 375 17 0.96 1.00 0.99 0.90 0.82 0.84
Sep 07 218 244 462 32 207 206 413 17 1.03 1.04 1.04 0.66 0.85 0.71
Jun 07 222 254 476 35 226 235 462 20 1.02 1.14 1.11 0.82 0.93 0.85
Mar 07 217 254 471 39 227 244 471 24 1.00 1.22 1.15 0.78 0.88 0.81
Dec 06 208 246 454 48 202 222 424 19 1.10 1.33 1.26 0.83 0.93 0.86
Sep 06 187 237 425 48 192 221 413 20 1.23 1.57 1.45 1.12 1.02 1.05
Source:
Annual report of Telecom Regulatory Authority of India (TRAI), 2006–07, available at http://www.trai.gov.
in/annualreport/AReport2006-07English.pdf (Accessed on 17 July 2008) and the TRAI performance indicators
reports published quarterly (www.trai.gov.in).
Note: Legend
— OG MOU: Outgoing Minutes of Usage; IC MOU: Incoming Minutes of Usage; OG SMS: Outgoing
SMS.
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Exhibit 7
Financial Details of the Firms Involved
Idea Cellular Limited
Balance Sheets as at 31 March (Rs in Millions)
Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Mar 01 Mar 00 Mar 99 Mar 98
SOURCES OF FUNDS:
Share Capital 25,928.60 27,425.30 27,425.30 27,425.30 25,265.30 20,166.90 13,416.80 8,944.50 8,795.80 5,343.00
Reserves Total –4,137.10 –15,740.00 –16,996.00 –17,256.50 –15,187.40 –13,589.40 –11,464.90 –6,604.60 –5,415.10 –2,108.50
Total Shareholders
Funds
21,791.50 11,685.30 10,429.30 10,168.80 10,077.90 6,577.50 1,951.90 2,339.90 3,380.70 3,234.50
Secured Loans 35,397.70 14,707.50 16,927.50 15,064.10 6,206.10 10,002.00 12,065.20 7,051.30 7,396.30 6,656.90
Unsecured Loans 7,107.40 14,448.50 10,052.80 7,571.20 11,992.20 5,173.90 2,625.40 4,010.60 7.70 25.60
Total Debt
42,505.10 29,156.00 26,980.30 22,635.30 18,198.30 15,175.90 14,690.60 11,061.90 7,404.00 6,682.50
Total Liabilities
64,296.60 40,841.30 37,409.60 32,804.10 28,276.20 21,753.40 16,642.50 13,401.80 10,784.70 9,917.00
APPLICATION OF FUNDS:
Gross Block 92,025.40 46,509.20 41,686.30 37,820.20 30,573.80 23,705.70 11,155.30 5,831.00 5,174.30 4,216.50
Less: Accumulated
Depreciation
36,101.00 18,334.40 14,911.40 11,739.10 4,733.40 3,011.60 1,828.10 666.50 –7,891.70 –6,226.20
Net Block 55,924.40 28,174.80 26,774.90 26,081.10 25,840.40 20,694.10 9,327.20 5,164.50 13,066.00 10,442.70
Lease Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Capital Work in Progress 5,065.10 959.10 646.20 744.10 398.20 2,996.20 0.00 0.00 0.00 0.00
Investments 138.30 3,070.30 3,070.30 920.30 382.50 327.70 460.20 0.00 0.00 0.00
Current Assets, Loans & Advances
Inventories 179.10 88.10 134.50 93.70 75.90 48.30 51.80 16.30 21.70 31.50
Sundry Debtors 1,524.80 908.10 1,424.40 988.20 739.60 787.20 594.60 224.80 196.30 191.00
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Cash and Bank 18,197.30 1,290.90 1,518.90 874.80 376.20 380.30 506.50 288.10 601.20 49.00
Loans and Advances 4,885.40 14,111.10 8,337.50 7,593.40 4,529.80 3,154.40 688.60 194.80 1,067.40 700.40
Total Current Assets 24,786.60 16,398.20 11,415.30 9,550.10 5,721.50 4,370.20 1,841.50 724.00 1,886.60 971.90
Less: Current Liabilities and Provisions
Current Liabilities 20,981.40 7,622.50 4,497.10 4,491.50 4,409.00 6,956.90 5,257.30 1,009.20 4,572.60 2,043.00
Provisions 625.90 138.60 0.00 0.00 0.00 0.00 2.80 0.30 0.00 0.20
Total Current Liabilities 21,607.30 7,761.10 4,497.10 4,491.50 4,409.00 6,956.90 5,260.10 1,009.50 4,572.60 2,043.20
Net Current Assets 3,179.30 8,637.10 6,918.20 5,058.60 1,312.50 –2,586.70 –3,418.60 –285.50 –2,686.00 –1,071.30
Miscellaneous Expenses
not written off
0.00 0.00 0.00 0.00 342.60 322.10 10,273.70 8,522.80 404.70 545.60
Deferred Tax Assets 810.20 578.30 329.00 1,630.10 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Tax Liability 820.70 578.30 329.00 1,630.10 0.00 0.00 0.00 0.00 0.00 0.00
Net Deferred Tax –10.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Assets 64,296.60 40,841.30 37,409.60 32,804.10 28,276.20 21,753.40 16,642.50 13,401.80 10,784.70 9,917.00
Contingent Liabilities 10,914.30 6,491.20 2,359.20 2,052.40 872.50 1,140.40 658.60 520.00 2,881.10 3,549.60
(
Exhibit 7 continued)
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Idea Cellular Limited
Profi t and Loss Account for the Year Ending (Rs in Millions)
Mar 07
(12)
Mar 06
(12)
Mar 05
(12)
Mar 04
(12)
Mar 03
(12)
Mar 02
(12)
Mar 01
(12)
Mar 00
(12)
Mar 99
(12)
Mar 98
(12)
INCOME:
Sales Turnover 43,664.00 20,070.70 16,320.40 11,655.20 8,514.80 6,712.20 3,212.50 1,500.00 1,083.10 553.00
Excise Duty 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Sales 43,664.00 20,070.70 16,320.40 11,655.20 8,514.80 6,712.20 3,212.50 1,500.00 1,083.10 553.00
Other Income 461.30 138.40 96.70 151.80 906.30 101.00 69.50 1,178.80 154.00 31.70
Stock Adjustments –11.90 –0.10 0.00 –0.80 –0.30 –0.20 0.30 –5.30 –14.40 –98.20
Total Income 44,113.40 20,209.00 16,417.10 11,806.20 9,420.80 6,813.00 3,282.30 2,673.50 1,222.70 486.50
EXPENDITURE:
Raw Materials 40.60 0.30 1.10 3.40 2.70 2.60 13.20 2.60 5.40 41.00
Power & Fuel Cost 1,177.10 426.20 353.80 276.50 214.00 145.20 70.80 47.60 41.40 28.70
Employee Cost 2,593.00 1,179.80 990.50 669.80 504.30 341.10 199.20 135.20 121.70 108.20
Other Manufacturing
Expenses
15,317.70 7,243.70 5,682.30 4,670.40 3,369.90 2,943.30 1,643.00 663.50 517.80 258.70
Selling and Administration
Expenses
9,274.30 3,752.00 2,692.30 2,088.80 41.90 37.10 34.60 24.40 26.10 18.60
Miscellaneous Expenses 493.00 255.80 1,459.60 1,580.00 2,283.00 1,681.30 1,732.90 1,167.00 2,322.60 548.40
Less: Pre-operative
Expenses Capitalised
0.80 0.40 0.80 3.30 7.20 3.80 3.30 3.90 0.00 0.00
Total Expenditure 28,894.90 12,857.40 11,178.80 9,285.60 6,408.60 5,146.80 3,690.40 2,036.40 3,035.00 1,003.60
Operating Profi t 15,218.50 7,351.60 5,238.30 2,520.60 3,012.20 1,666.20 –408.10 637.10 –1,812.30 –517.10
Interest 3,409.80 2,591.20 2,600.00 2,586.30 2,022.90 1,869.90 1,604.70 1,551.80 1,257.20 515.80
Gross Profi t 11,808.70 4,760.40 2,638.30 –65.70 989.30 –203.70 –2,012.80 –914.70 –3,069.50 –1,032.90
Depreciation 6,718.10 3,475.40 2,377.80 2,003.40 2,587.40 1,920.80 405.80 274.90 237.10 947.30
(
Exhibit 7 continued)
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Profi t Before Tax 5,090.60 1,285.00 260.50 –2,069.10 –1,598.10 –2,124.50 –2,418.60 –1,189.60 –3,306.60 –1,980.20
Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Tax 10.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Reported Net Profi t 5,020.60 1,256.00 260.50 –2,069.10 –1,598.10 –2,124.50 –2,418.60–1,189.60 –3,306.60 –1,980.20
Extraordinary Items 83.00 15.20 –2.60 –17.80 –125.70 3.80 2.30 –0.50 0.60 0.30
Adjusted Net Profi t 4,937.60 1,240.80 263.10 –2,051.30 –1,472.40 –2,128.30 –2,420.90 –1,189.10 –3,307.20 –1,980.50
Adjst. below Net Profi t –12,790.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P & L Balance brought
forward
–16,738.40 –17,994.40 –18,254.90 –16,185.80 0.00 0.00 0.00 0.00 0.00 0.00
Statutory Appropriations 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Appropriations 0.00 0.00 0.00 0.00 –1,598.10 –2,124.50 –2,418.60 –1,189.60 –3,306.60 –1,980.20
P & L Balance carried
down
–24,508.60 –16,738.40 –17,994.40 –18,254.90 0.00 0.00 0.00 0.00 0.00 0.00
Dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Preference Dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Equity Dividend % 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Earnings Per Share–Unit
Curr
19.40 5.60 1.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Book Value-Unit Curr 84.00 30.30 24.80 23.60 29.00 26.50 14.50 26.20 38.40 60.50
(
Exhibit 7 continued)
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(
Exhibit 7 continued)
Spice Communications Limited
Balance Sheets as at 31 Dec/30 June (Rs in Millions)
Dec 07 Dec 06 Jun 06 Jun 05 Jun 04 Jun 03 Jun 02
SOURCES OF FUNDS:
Share Capital 6899.30 5519.40 5519.40 5519.40 5519.40 5519.40 5519.40
Reserves Total 1680.10 –7043.20 –6425.40 –5738.00 –5811.80 –5586.70 –6168.20
Total Shareholders Funds 8579.40 –1523.80 –906.00 –218.60 –292.40 –67.30 –648.80
Secured Loans 12538.80 11440.20 10360.00 7278.20 7451.40 7180.20 7300.70
Unsecured Loans 316.10 639.00 713.10 3483.50 3364.30 3368.40 3602.20
Total Debt 12854.90 12079.20 11073.10 10761.70 10815.70 10548.60 10902.90
Total Liabilities 21434.30 10555.40 10167.10 10543.10 10523.30 10481.30 10254.10
APPLICATION OF FUNDS:
Gross Block 26655.40 19998.40 18458.40 16663.70 15632.70 14590.80 13929.00
Less: Accumulated Depreciation 10417.80 10262.80 9370.40 7934.90 6708.40 5500.90 4340.60
Net Block 16237.60 9735.60 9088.00 8728.80 8924.30 9089.90 9588.40
Lease Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Capital Work in Progress 1429.30 441.30 318.90 271.90 239.30 118.80 212.50
Investments 971.70 0.00 0.00 0.00 0.00 0.00 0.00
Current Assets, Loans & Advances
Inventories 18.90 6.60 0.00 0.50 0.00 3.90 9.60
Sundry Debtors 656.70 544.50 505.30 597.80 532.30 503.20 555.80
Cash and Bank 2058.10 1272.90 1472.70 2099.10 2073.00 1542.20 1132.80
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(
Exhibit 7 continued)
Loans and Advances 6782.00 915.20 520.40 762.70 642.80 698.80 303.60
Total Current Assets 9515.70 2739.20 2498.40 3460.10 3248.10 2748.10 2001.80
Less: Current Liabilities and Provisions
Current Liabilities 4466.80 2540.40 1973.30 1925.30 1899.20 1489.60 1566.00
Provisions 266.80 101.40 0.00 0.00 0.00 0.00 0.00
Total Current Liabilities 4733.60 2641.80 1973.30 1925.30 1899.20 1489.60 1566.00
Net Current Assets 4782.10 97.40 525.10 1534.80 1348.90 1258.50 435.80
Miscellaneous Expenses not
written off
596.00 281.10 235.10 7.60 10.80 14.10 17.40
Deferred Tax Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Tax Liability 2582.40 0.00 0.00 0.00 0.00 0.00 0.00
Net Deferred Tax –2582.40 0.00 0.00 0.00 0.00 0.00 0.00
Total Assets 21434.30 10555.40 10167.10 10543.10 10523.30 10481.30 10254.10
Contingent Liabilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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(
Exhibit 7 continued)
Spice Communications Limited
Profi t and Loss Accounts for the Periods Ending (Rs in Millions)
Dec 07
(12)
Dec 06
(6)
Jun 06
(12)
Jun 05
(12)
Jun 04
(12)
Jun 03
(12)
Jun 02
(12)
INCOME:
Sales Turnover 9578.50 3891.60 6614.90 6065.70 5363.40 4942.60 5017.00
Excise Duty 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Sales 9578.50 3891.60 6614.90 6065.70 5363.40 4942.60 5017.00
Other Income 5160.40 105.90 188.00 369.10 186.40 853.90 309.40
Stock Adjustments –5.00 6.60 0.00 0.00 0.00 0.00 0.00
Total Income 14733.90 4004.10 6802.90 6434.80 5549.80 5796.50 5326.40
EXPENDITURE:
Raw Materials 103.50 52.10 0.00 0.00 0.00 0.00 0.00
Power & Fuel Cost 671.60 163.50 0.00 0.00 0.00 0.00 0.00
Employee Cost 500.70 225.90 406.70 381.50 346.80 315.60 296.50
Other Manufacturing Expenses 3716.80 1565.20 2377.50 2149.10 1800.50 1454.80 1237.60
Selling and Administration
Expenses
2228.70 979.80 2324.60 1870.20 1712.00 1512.00 1882.40
Miscellaneous Expenses 156.30 72.70 40.60 0.00 0.00 0.00 3.30
Less: Pre-operative Expenses
Capitalised
0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Expenditure 7377.60 3059.20 5149.40 4400.80 3859.30 3282.40 3419.80
Operating Profi t 7356.30 944.90 1653.50 2034.00 1690.50 2514.10 1906.60
Interest 1658.90 631.10 869.70 719.00 680.50 766.40 1057.90
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Gross Profi t 5697.40 313.80 783.80 1315.00 1010.00 1747.70 848.70
Depreciation 1813.90 695.80 1458.20 1239.30 1235.10 1171.60 1004.50
Profi t Before Tax 3883.50 –382.00 –674.40 75.70 –225.10 576.10 –155.80
Tax 66.00 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Reported Net Profi t 3801.30 –386.90 –687.40 73.90 –225.10 576.10 –155.80
Extraordinary Items 4329.60 –3.00 0.00 0.00 0.00 0.00 0.00
Adjusted Net Profi t –528.30 –383.90 –687.40 73.90 –225.10 576.10 –155.80
Adjst. below Net Profi t –20.60 0.00 0.00 0.00 0.00 0.00 0.00
P & L Balance brought forward –7043.20 –6656.30 –5738.00 –5811.90 –5586.70 –6162.80 –6012.40
Statutory Appropriations 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Appropriations 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P & L Balance carried down –3262.50 –7043.20 –6425.40 –5738.00 –5811.80 –5586.70 –6168.20
Dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Preference Dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Equity Dividend % 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Earnings Per Share-Unit Curr 55.10 0.00 0.00 1.30 0.00 10.40 0.00
Book Value-Unit Curr 124.40 –27.60 –16.40 –4.00 –5.30 –1.20 –11.80
Source:
Financial statements of Idea Cellular and Spice Communications were sourced from the Capital Line database (www.
capitalline.com), and that of Telekom Malaysia from the company’s annual report, available on the company’s website
http://www.tmigroup.com (Accessed on 17 July 2008).
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Exhibit 8
Stock Price Movement Around Date of Announcement
Source:
Capital Line database (www.capitalline.com) (Accessed on 23 July 2008).Downloaded from http://ajc.sagepub.com at K.R.E.T'S TRIDENT INSTITUTE on April 11, 2010
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