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Voda, Idea merge in all-share deal to create India’s largest telco
British telecom giant Vodafone and Kumar Mangalam Birla-owned Idea Cellular announced the all-share merger deal on Monday, creating the largest mobile operator by customer and revenue market share in the country. The mega entity is expected to create a telecom giant with its wide-ranging implications for the industry, services, the staff and consumers as well.
The merger will also push more merger moves in the telecom sector. “The merged entity will be jointly controlled by Vodafone and the Aditya Birla group as per shareholders’ agreement,” said Idea and Vodafone jointly in a statement.
Telecom industry is on consolidation move. Besides this merger, its competitor Bharti Airtel has already bought India assets of Telenor and Reliance Communication, Aircel, Tata Teleservices and MTS are in talks for merger.
As far as the Voda-Idea merger is concerned, the new telecom giant will be headed by Kumar Mangalam Birla as Chairman and the mega firm is expected to come into force over the next two years. Vodafone will have its nominee as the Chief Financial Officer (CFO), according to its Chief Executive Officer (CEO) Vittorio Colao.
The all-share merger for both partners excludes Vodafone’s 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone deconsolidating Vodafone India. Vodafone will own 45.1 per cent in the new company after transferring 4.9 per cent to the Aditya Birla group for Rs 3,874 crore in cash concurrent with completion of the merger. Idea will hold 26 per cent of the combined entity while the rest will be owned by public shareholders.
With this merger announcement, shares of Idea Cellular thumbed it down on Monday, shrinking nearly 10 per cent and wiping out Rs 3,692 crore from the market valuation. Idea’s stock plunged 9.55 per cent to end at Rs 97.60 on the BSE. Following the decline in the stock, the company’s market valuation fell by Rs 3,691.87 crore to Rs 35,170.13 crore.
Keeping the merger analysis in view, with 204.68 million customers Vodafone enjoys market share of 18.16 per cent. Idea has 16.9 per cent with 190.51 million customers as of December 2016, according to data available with telecom regulator TRAI. Another close rival Airtel with a market share of 23.58 per cent and a customer base of 265.85 million, at the same time has been leading the market both in terms of revenue and customer base as well.
Reacting to this mega merger in the telecom space, Cellular body COAI termed the merger of Idea Cellular and Vodafone India as a bold move and said the combined stronger entity will be beneficial to both the Government and consumers of the Indian telecom market. “It is a bold move from both the operators and signals their intention to be long-term players in India. From the Government’s perspective, it will mean stability in terms of payments because it is a stronger entity that will emerge,” COAI Director General Rajan Mathews said.
While JP Morgan analysts Viju K George and Anshul Agrawal jointly said in a statement, “In a telecom industry that is likely to see migration toward an free voice regime spurred by Reliance Jio, Idea stands to be most vulnerable (given Idea’s higher percentage of rural, semi-urban subs who are not nearly as data-hungry as creamy subs in Metros and select Circle As, where Idea has relatively limited presence).
On spectrum distribution, the combined entity 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 or $12.4 billion for Vodafone India and Rs 72,200 crore or $10.8 billion for Idea,” according to an exchange filing by Idea. But as per the 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 companies had a net debt of Rs 1.07 trillion as of December 2016. The Vodafone chief, who ruled out any chance of the lingering tax dispute with the government to affect the merger process, also said both the companies will have three representatives each on the board of the new company. Colao, however, said the merger makes possible synergies of $10 billion. “Both the brands, considering their strengths, will continue to operate separately,” he said.
While Birla said the fund for picking up 4.9 per cent of Vodafone stake for Rs 3,874 crore would come from the promoters, and not from Idea. He also 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.
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