Idea, Vodafone sign off on ‘equal’ merger in India

New Delhi: The boards of Idea Cellular Ltd and Vodafone India Ltd have approved their merger, excluding the latter’s 42% stake in Indus Towers Ltd, heralding the creation of India’s largest telecom company in a $23 billion deal.

The merger is aimed at dominating a market which billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd has disrupted with free voice calls and low data prices. Jio, in which Ambani has invested $20 billion, launched its services in September.

The merger will create the world’s second largest and India’s largest telco, overtaking Bharti Airtel Ltd. It will have almost 400 million customers with 35% customer and 41% revenue market share. It will have revenue of Rs81,600 crore and an operating profit of Rs24,400 crore. Together, Idea Cellular and Vodafone India have debt of Rs1.08 trillion. The merger is expected to be completed in 2018.

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The name of the combined listed firm will be changed, Idea said in a statement.

“For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths,” said Kumar Mangalam Birla, chairman of Aditya Birla Group. Birla will be the chairman of the merged entity, Mint reported on 10 February.

The appointments of the chief executive officer and chief operating officer will require approval of the boards of both firms while Vodafone will have the right to appoint the chief financial officer.

According to Vodafone Plc. CEO Vittorio Colao, the combination will have the scale required “to ensure sustainable consumer choice ... and to expand new technologies—such as mobile money services—that have the potential to transform daily life for every Indian”.

Idea Cellular’s managing director Himanshu Kapania said in an investor call that the transaction is based on the principle of equal partnership, joint control and equal rights.

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In the beginning, Vodafone will be a dominant partner with 45.1% stake after it transfers 4.9% to the Aditya Birla Group for Rs3,874 crore. The Aditya Birla group will own a 26% stake but have the right to acquire up to 9.5% from Vodafone.

If that doesn’t happen by the end of the fourth year, “Vodafone is obliged to reduce its holding in order to equalise its ownership with that of the promoters of Idea over the following five years”, Idea said.

Mint first reported on 10 February that the two companies would have roughly 37% each in the merged entity.

Before the deal is closed, Vodafone and Idea plan to sell their tower assets and Idea’s 11.15% stake in Indus Towers. Vodafone will also explore strategic options, including a sale, for its 42% stake in Indus.

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The Aditya Birla group has an option to purchase shares from Vodafone at Rs130 each in the first three years and at market price in the fourth. Kumar Mangalam Birla said this will be funded through promoter companies (such as Pilani Investments) and not listed entities.

Shares of Idea Cellular rose 11% but ended the day at Rs97.60 apiece on the BSE, down 9.55%, while the benchmark Sensex declined 0.44%.

Idea Cellular’s Kapania said the merged entity would derive synergy benefits of Rs13,400 crore by the end of the fourth year.

“The managements of Idea and Vodafone are looking at cost optimization and synergies in consolidation of network sites leading to savings to the tune of almost $2.1 billion on an annualized basis,” said Mayuresh Joshi, fund manager, Angel Broking Ltd.