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Idea Cellular, Vodafone India announce merger
PTI | Monday, 20 March 2017 AT 12:11 PM IST
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Mumbai:
Vodafone India and Idea Cellular on Monday agreed to merge their operations to create the country’s largest mobile phone operator worth more than USD 23 billion with a 35 per cent market share. This means the combined entity of Vodafone and Idea Cellular, which are India’s number 2 and 3 mobile players, respectively, will overtake Bharti Airtel in a bid to tackle a raging price war in the world’s second-largest market.

The British firm will own 45.1 per cent of the merged entity while the Aditya Birla group, Idea’s parent company, will own 26 per cent after paying Rs 3,874 crore cash for a 4.9 per cent stake, the two firms announced at a press conference here.
The remaining 28.9 per cent will be held by other shareholders. The new company will be headed by Kumar Mangalam Birla.


Vodafone will have the right to appoint chief financial officer.

The CEO and the chief operating officer will be appointed with approval of both companies. The two firms will have three nominees each on the board of the new entity. Aditya Birla and Vodafone eventually aim to own an equal share of the joint venture.

The merger excludes Vodafone’s 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone, which will result in Vodafone deconsolidating Vodafone India. This is the second merger in the sector in as many months. Last month, Bharti Airtel announced plans to buy the Indian business of the Norway-based Telenor.

The merged venture will create India’s largest mobile operator with almost 400 million users and a 35 per cent market share by customers. The deal gives Vodafone India an implied enterprise value of Rs 82,800 crore and Idea an enterprise value of Rs 72,200 crore.

Vittorio Colao, CEO of Vodafone, the world’s second-biggest mobile operator by subscribers, said the two companies will continue to operate under their current brands indefinitely, but will eventually work under the same name.
He did not expect major regulatory hurdles to the deal as he ruled out any chance of the lingering tax dispute with the government to affect the merger process.

Idea Cellular fell 7.9 per cent to Rs 99.50 after surging as much as 14.5 per cent. With 204.68 million customers, Vodafone enjoys market share of 18.16 per cent. Idea has 16.9 per cent with 190.51 million users as of December 2016, according to Trai data.

Airtel, with a market share of 23.58 per cent and a customer base of 265.85 million, leads the market both in terms of revenue and customer base.

According to a CLSA report in January, the merged entity will have revenue of over Rs 80,000 crore, translating into a 43 per cent share by revenue and 40 per cent by active subscriber base with around 400 million customers.

The combined venture will account for over 25 per cent of the allocated spectrum and will have to sell about 1 per cent (worth Rs 5,400 crore) to comply with spectrum cap norms.

“The merger pegs implied enterprise valuation of Rs 82,800 crore (USD 12.4 billion) for Vodafone India and Rs 72,200 crore (USD 10.8 billion) for Idea,” said an exchange filing by Idea. The companies had a net debt of Rs 1.07 trillion as of December 2016.

Colao also said the merger makes possible synergies of USD 10 billion, adding that both brands, considering their strengths, will continue to operate separately. Indicating Vodafone’s intention of gradually exiting the country, Colao and Birla said that over a period, both will have equal stakes in the merged entity.

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. He ruled out any major downsizing at Idea, post merger. The scheme of amalgamation includes Vodafone India (VIL) and its wholly-owned subsidiary Vodafone Mobile Services (VMSL) merging with the new company.

Vodafone will keep its 42 per cent consideration in Indus Towers out of the merger process. The turnover of Vodafone India is Rs 5,025 crore and that of Vodafone Mobile Service is 40,378 crore. Idea’s turnover is Rs 36,000 crore. The net worth of VIL is Rs 12,855 crore, VMSL Rs 3,737 crore and Idea Rs 24,296 crore.

The Birlas will have the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time, said a joint statement by the two companies.

The merger will result in substantial cost and capex synergies with an estimated net present value of around USD 10 billion after integration costs and spectrum liberalisation payments, with estimated savings of USD 2.1 billion annually from the fourth year of the merger.

Vodafone India will be deconsolidated by Vodafone and reported as a joint venture post-closing, reducing Vodafone Group’s net debt by around USD 8.2 billion.

Colao said that to help the Birla group increase the shareholding in the combined company after four years, Vodafone will sell shares over the following five-year period.

Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement. The AB group will have the right to buy 9.5 per cent in the entity at Rs 130 per share.

 
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