After months of talks, India's second largest telecom company Vodafone and close rival Idea Cellular have agreed to merge. The resultant entity will surpass Bharti Airtel to become the largest telecom operator in the country with a total revenue of about Rs 80,000 crore.
The deal excludes Vodafone India's 42 per cent stake in Indus Towers.
To start with, Vodafone will hold 45.1 per cent stake in the merged entity after the transfer of 4.9 per cent stake to Idea's promoters Aditya Birla Group for Rs 3,874 crore in cash. Aditya Birla Group will hold 26 per cent in the merged company, but according to the agreement, has the right to acquire more shares from Vodafone, which will equalise the shareholding of the two entities over time.
“The promoters of Idea have the right to acquire up to 9.5 per cent additional stake from Vodafone under an agreed mechanism with a view of equalising the shareholding over time. If Vodafone and the promoters of Idea don't have equal shareholding by the expiry of the fourth year from completion of the amalgamation, Vodafone is obliged to reduce its holding in order to equalise its ownership with that of the promoters of Idea over the following five-year period,” Idea said in a notice to exchanges.
The merger of Vodafone and Idea is expected to result in substantial cost and capital expenditure synergies with an estimated net present value of about Rs 67,000 crore after integration costs and spectrum liberalisation payments, with estimated run-rate savings of Rs 14,000 crore on an annual basis by the fourth full year post completion, the two companies said.
“This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the government's digital India vision a reality,” said Kumar Mangalam Birla, chairman, Aditya Birla Group.
The deal will be “highly accretive” to Idea's shareholders and lenders, he added.
Vodafone and Idea's merger comes in the backdrop of increasing consolidation in the telecom industry, which is seeing cut-throat competition, particularly since the roll-out of Reliance Industries' Jio 4G VOLTE services, and high capex and spectrum acquisition costs.
Recently, Bharti Airtel announced it would acquire Norweigan telecom company Telenor's India operations. Last year, Anil Ambani's Reliance Communications had announced a merger with Aircel.
Idea and Vodafone said the combination of the networks of the two companies and spectrum holdings will accelerate pan-India expansion of wireless broadband services on 4G/5G technologies to build capacity. It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio, the two added.
Post the merger with Idea, Vodafone India will be deconsolidated by Vodafone and reported as a joint venture, post closing of the deal. This is expected to reduce Vodafone Group's net debt by about Rs 55,200 crore.
The deal is expected to close sometime in 2018.
“The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian,” said Vittorio Colao, chief executive, Vodafone Group.
