The mega merger in the telecom tower space has hit a dead end. The Rs 50,000-crore ($11 billion) merger between Anil Ambani's Reliance Infratel (R-Infratel) and Manoj Tirodkar's GTL Infrastructure has been called off as both sides failed to reach an  agreement.

The deal, one of the largest domestic M&A transactions this year, would have created the world's largest passive telecom infrastructure company with over 80,000 towers.

The news comes as talks between Reliance Communications, the parent of R-Infratel which is looking to dilute a 26% stake, and Etisalat haven't made any significant progress on structuring concerns. It is learnt that while Etisalat may be opposed to unbundling of assets, but RCom may continue with this strategy to unlock value.

VCCircle has learnt that RCom has been approached by two US-based strategic investors for a possible deal in the tower space.

GTL Infra today informed the exchanges: "The Non-Binding Term Sheet signed by both parties dated June 27, 2010 expired on August 31, 2010. Subsequently despite efforts, both parties have neither extended the Term Sheet nor entered into any definitive transaction agreements as envisaged therein. Consequently, the process of merger as originally contemplated would not take place."

The deal being discussed involved a part cash payment and the rest through equity shares of GTL Infra. The contours of the deal being discussed involved Manoj Tirodkar's Global Group becoming the largest shareholder with 33-35% stake with Anil Ambani taking a 26% in his personal capacity while the rest in the hands of RCom and GTL Infra shareholders.

A source familiar with the development said, the cash component of the deal, which would have helped RCom cut its debt, did not work out. The source added that GTL Infra was never upbeat on the cash component of the deal as it was already leveraged from the acquisition of Aircel's tower business for Rs 8,400 crore in January this year.

RCom had a net debt of Rs 19,889 crore at end of March' 10, which increased to around Rs 28,500 crore after the recently concluded 3G auctions. The current development may put RCom in a tight spot as it was  also planning to sell a 26% stake to a strategic investor in the telecom business. But talks with Etisalat, which said to be a leading contender, have also not progressed.

"Reliance Communications Ltd. is now engaged in discussions with certain other strategic and financial investors, to pursue a similar transaction aimed at significant reduction in the Company's debt and unlocking of value for RCOM shareholders from the passive infrastructure and related assets in its 95% owned subsidiary, Reliance Infratel Ltd," said RCom in a statement. "Owing to the provisions of mutual confidentiality agreements, RCOM cannot provide any comment on the reasons for the inability to conclude a transaction with GTL Infrastructure Ltd," it added.

"Under the deal structure envisaged, RCom would have received a cash component of Rs 180 bn and RCom shareholders would have received shares in the merged towerco. The cash infusion would have led to a significant improvement in RCom's leverage ratios, with the net debt-equity ratio in FY11 falling to 0.1x (from 0.6x) and the net debt-EBITDA ratio to 0.7x (from 3.4x). The focus is now likely to shift to a stake sale to a strategic investor, which has been under discussion over the past few months now," said Karvy Stock Broking's Harit Shah in a note.

Bankers involved in the transaction also said that the talks had started to flounder for a while and there were points of differences between the companies.

Tirodkar, who was close to the united Ambani family, made GTL Infra a top player independent player in the Indian telecom tower space by follow-on acquisitions of Aircel tower business and the merger with Reliance Infratel. The deal with Aircel increased GTL Infra's tower network to around 33,000 and the R-Infratel deal would have increased

this count to 80,000 sites, making the firm undisputed leader.

Anil Ambani started restructuring his business soon after the truce with elder brother Mukesh Ambani came into being in late May. Anil Ambani had mandated different bankers to work on the deals in mobile, tower and cable operations. In cable, the RCom subsidiary undertook an equity merger with Digicable.

Around this time only, brother Mukesh Ambani also marked his re-entry into telecom space when Reliance Industries acquired a 95% stake in Infotel Broadband, which holds broadband rights in all 22 states.

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