Mumbai: The AV Birla group telecom company Idea Cellular is acquiring the stake of the Modi family in the Modi Group's telecom company, Spice Communications, and will end up being the majority partner once the deal closes.

Once it acquires the 40.8-per cent stake of the Modis in Spice, Idea will have to make a mandatory open offer for 20 per cent of Spice Communications.

The Modis were reported to be looking for options to exit their telecommunications venture, Spice Communications, having been denied a pan-India license on account of the company's unfavourable economic position. (See: Spice Communications looking at options)

Spice Communications was looking at Telekom Malaysia raising its stake to 74 per cent from the current 39.2 per cent. Spice was also open to the UAE-based Etisalat and others buying a stake in the company, as the company's chairman B K Modi had earlier said.

The Modis were earlier reported to be in a three-way discussions involving  partner Telekom Malaysia Bhd, Japan's NTT DoCoMo Inc and local firm Idea Cellular Ltd for the stake sale, sources said. Telekom Malaysia, Etisalat and NTT DoCoMo are partners in some telecom markets.

Reports had indicated that Telekom Malaysia too wanted to acquire the Modis stake and thereafter explore the possibility of merging the company with Idea Cellular.

Spice shares closed at Rs51.95 on Friday, lower by 3 per cent from the previous day's close. At this price, Spice Communications has a market capitalisation of around $850 million. Both Idea Cellular and Spice Communications have refused to comment on any report or development pertaining to the divestment of Modi's stake or the possible merger with Idea Cellular.

Spice Communications has been a potential acquisition target for some time, given that it has been operating in the two circles of Punjab and Karnataka only since the 11 years of its existence, and has spectrum in the 900 MHz band, that can accommodate a larger number of subscribers than the 1800 MHz band. Spice Communications has a combined subscriber base of around 4.4 million in the two circles , offering any company willing to take it over a running start in those markets.

Spice had applied for a pan-India telecom licence, but the department of telecom had denied it on the grounds of the company's financial strength, instead allotting it licenses for four more circles of Andhra Pradesh, Haryana, Delhi and Maharashtra.

Telekom Malaysia has operations across Asia, with a presence in Indonesia, Singapore, Cambodia, Thailand, Bangladesh, Pakistan, India, Sri Lanka and Iran besides Malaysia with 39.8 million customers at the end of 2007.

Telekom Malaysia may seek management control.

Reports also say that Telekom Malaysia is likely to increase its stake Spice Communications to gain management control. Spice Communications is looking to scale up its operations beyond the two circles it operates in, to try and attain a pan-India presence and compete effectively with players such as Bharti Airtel, Reliance Communications and Vodafone Essar. (See: Telekom Malaysia may gain management control of Spice)

Telekom Malaysia officials are reported to have met Spice chairman B K Modi to work out a stake-sale, and sources indicate that the Malyasian operator may take its stake up to 51 per cent, infusing much needed capital for Spice Communications to expand its network. Some reports indicate that the Modi family will divest only around 14 per cent, and would prefer to retain around 26 per cent in a larger, more viable Spice Communications with larger operations.

Speculation is rife in the media over the price demanded by the Modi's for their stake, with estimates ranging from Rs60 to Rs90 per share. According to reports Modi would consider selling his stake in Spice Communications at a minimum price of Rs60 per share, which he considers to be ''a fair price'', while other reports peg his demands at Rs90, and offer prices at around Rs70. The offer price estimates put a 34 per cent premium on Spice's current share price of Rs 51.95.