New Delhi: Three-way merger talks between the promoters of Indian mobile phone service firms Idea Cellular Ltd, Spice Communications Ltd, and Telekom Malaysia International Bhd (TMI), Spice’s international partner, are firming up pending a three-year deal for buying handsets from Spice Mobiles Ltd and software services Cellebrum Technologies Ltd, said a person close to the discussions.

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“Telekom Malaysia has accepted the 2:1 ratio for Spice (Communications) and Idea shares in the merged entity at Rs77 and Rs150 per share respectively, but there is no final agreement on the issue.

Valuations of all the three companies has been done and agreement on other products is to be done," this person said, asking not to be identified since a deal is not final.

Mint reported on Thursday that Telekom Malaysia is looking to own 20% stake in the Idea Cellular-Spice Communications merged entity and is willing to invest $1.6 billion (Rs6,864 crore) in the new company.

The merger envisages a buyout by Idea Cellular of some 40% equity owned by the Modis in Spice Communications. According to this person, the Modis want a three-year agreement with the Idea Cellular-Spice Communications merged entity as also Telekom Malaysia for procurement of mobile handsets and value-added service offerings.

The agreement, if concluded, will help Spice Mobiles and Cellebrum to extend their reach not only in India but also in other markets where Telekom Malaysia has a presence.

Sanjeev Aga, managing director of Idea Cellular, declined to comment.

Calls to Telekom Malaysia’s chief financial officer Yusof Annuar Yaacob were not returned.

The Spice Communications networks in Punjab and Karnataka, with a combined customer base of some 4.5 million customers, offer Idea Cellular, which is not present in hese two states, is a strategic fit.

“Spice has been there for a very long time in the two circles—Karnataka and Punjab, and now with the deal it gives Idea a direct entry," said Sourabh Kaushal, a consultant at Frost and Sullivan. “Again, Spice was not profitable to become a pan-India player and with more new players in the sector it is better to go ahead with such a deal."

At the close of trading on the Bombay Stock Exchange on Friday, shares of Idea Cellular gained 0.51% to close at Rs108.15 a share, valuing the company at Rs28,501 crore. The shares had gained 10.3% on Thursday.

Spice Communications shares gained 1.81% to Rs61.75 a share, valuing the company at Rs4,260 crore.

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