emfizz.com March 23, 2017

Meet India's Largest Telecom As Vodafone & Idea Merge

21 March 2017, 09:24 | Jan Cross

Vodafone, Idea Cellular announce merger to create India's largest telco

Idea, Vodafone announce merger; combined entity to be India's biggest telecom operator

Faced with a new, aggressive competitor, British telecom giant Vodafone is merging its Indian business with Idea Cellular to create India's largest wireless company.

Birla said the fund for picking up 4.9 per cent of Vodafone stake for Rs 3,874 crore will come from the promoters, and not from Idea.

Vodafone India and Idea Cellular today agreed to merge their operations to create the country's largest mobile phone operator worth more than United States dollars 23 billion with a 35 per cent market share.

At present, Vodaphone is the second largest telecom operator in India, a slot behind Bharti Airtel. The combined entity will have 40 crore customers or almost one in three customers in India.

Newswire service AFP also confirmed news of the merger, saying that Vodafone and Idea Cellular today announced that they have reached an agreement to combine their operations in India via a statement to the Bombay Stock Exchange.

The company also said that after the merger, shares issued to Vodafone India in pursuant of the merger of VMSL with the company would stand cancelled. Vodafone India said the merger would generate cost savings of about $2 billion annually by the fourth year after the deal.

Both companies will jointly agree on the CEO and COO.

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Vodafone, the world's second-largest cellphone operator, had previously sought to leave joint ventures it did not control but Chief Executive Vittorio Colao said the group had to be realistic in such a challenging market. Kumar Mangalam Birla, chairman of Aditya Birla Group, will head the new company.

The merger ratio implies an enterprise value of INR828 billion for Vodafone India and INR722 billion for Idea Cellular. Idea will hold 26% of the combined entity while the rest will be owned by public shareholders. At the very least, the company may have to relinquish spectrum holdings in some parts of the country due to regulations that prohibit any single player from controlling more than half of the available spectrum. Vodafone will have the right to pick CFO. Prior to completion of the transaction, the plan is for Vodafone and Idea intend to sell their standalone tower assets and Idea's 11.15 per cent stake in Indus Towers to reduce leverage in the combined company.

The remaining 28.9 per cent will be held by other shareholders.

Vodafone will keep its 42 per cent consideration in Indus Towers out of the merger process. However, if after four years both parties don't own the same amount, Vodafone has agreed to sell down its shares to ensure parity of ownership over the following five years.

ICRA said, "Vodafone is the market leader in Metro circles (combined), while Idea is a strong player in category B circles, thus the merged telco would have a strong footprint, with market leadership in 12 out of the 22 circles, and 2nd rank in 9 circles".

The merger will allow Vodafone to bat off some fierce competition in the Indian telecoms market.

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