Vodafone's Indian unit and Idea Cellular announce merger

The implied enterprise value for Vodafone India stands at Rs 82,800 crore while that of Idea Cellular stands at Rs 72,200 crore, excluding its stake in Indus Towers.

The proposed merger of Vodafone India and Idea will create an entity with a revenue of around Rs 77,500-80,000 crore besides eliminating duplication of spectrum and infrastructure capex, the rating agency said in its report.

Both the companies had confirmed last month that they are in talks to create a telecom giant which will take on Reliance Jio, the aggressive new entrant flush with cash, and the entrenched leader Bharati Airtel.

The deal is expected to close in 2018 following regulatory approvals. The appointment of chief executive officer and chief operating officer need the approval of both the promoters.

Shares in Idea rose as much as 14.25 percent immediately after the merger news but gave up gains to be trading up 3.8 percent at 9:25 am. "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".

Management: The promoters of Idea will appoint the Chairman of the company. The Vodafone companies have a combined turnover of Rs 454.03 billion (55.8% of total), while Idea has a turnover of Rs 360 billion (44.8% of total). Until date, Airtel was recognized as the largest telecom operator in India which will now be pushed to the second spot.

Idea founders will hold 26 percent of the combined company and balance will be with the public. The merged entity will then be reported as a joint venture by Vodafone. The combined entity will have 40 crore customers or almost one in three customers in India. The statement said that if Vodafone and the Aditya Birla Group's shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period. The name of the combined listed company will be changed in due course, Idea said in a statement.

The 4G Jio network launched in September with an audacious free service for the rest of 2016, followed by vastly cheaper data plans and free voice calls for life.

Marginal players such as Reliance Communications, Aircel and Telenor are already looking at probable consolidation.

  • Arturo Norris