Voda ‘n’ Idea: Merger creates India’s largest telco

The merged entity, called Vodafone Idea Ltd, will have a subscriber base of over 40.8 crore and a market share of over 35 per cent, overtaking Bharti Airtel to take numero uno spot, the two firms said in a joint statement. Kumar Mangalam Birla, Chairman, Aditya Birla Group that owned Idea Cellular, will be Chairman of the new company that will have a 12-member board of directors, it said.

Vodafone has a right to appoint the CFO, and the two firms have together chosen Balesh Sharma as the CEO of the new company. Himanshu Kapania has stepped down as managing director of Idea Cellular, but will continue as a non-executive director on the merged entity’s board.  The merger puts Vodafone India and Idea in a strong position to cut costs and thus compete effectively with Reliance Jio. Savings from the deal are estimated at Rs 14,000 crore.

 Telecom sector has witnessed consolidation aimed at finding economies of scale after Reliance Jio ploughed $ 25 billion into a pan-India national 4G data service, offering free voice call and tariffs well below prevailing rates. Jio has amassed 230 million subscribers in two years of its launch.  Bharti Airtel fired the starting gun with the acquisition of the Indian business of Norway-based Telenor. It subsequently took over consumer mobile businesses of Tata Teleservices Ltd (TTSL) and Tata Teleservices Maharashtra Ltd (TTML).

 Mobile markets in several parts of the world have been rocked by cheap upstarts, including T-Mobile in the US, Iliad in France and Hong Kong group CK Hutchison’s Three unit in other European markets.

“Today, we have created India’s leading telecom operator. It is truly a historic moment. And this is much more than just about creating a large business. It is about our vision of empowering and enabling a new India and meeting the aspirations of the youth of our country,” said Birla. The deal gives Vodafone India an implied enterprise value of Rs 82,800 crore and Idea an enterprise value of Rs 72,200 cr. 

Vodafone will own 45.1 pc of the new business while the Aditya Birla Group, Idea’s parent company, will own 26 per cent after paying Rs 3,900 crore cash for a 4.9 per cent stake.

Vodafone Idea will have a pan India revenue market share of 32.2 per cent and the No 1 position in 9 circles, the statement said. It will have over 3,40,000 broadband sites covering 84 crore Indians, largest voice network with over 2,00,000 unique GSM sites to cover over 1.2 billion Indians (92 per cent population coverage), large spectrum portfolio of 1,850 MHz and an adequate number of broadband carriers to provide superior consumer experience across 2G, 3G and 4G platforms, and widest distribution network with over 1.7 million retailers and 15,000 branded stores to service customers.

“The merger is expected to generate Rs 14,000 crore annual synergy, including opex synergies of Rs 8,400 crore, equivalent to a net present value of approximately Rs 70,000 crore,” it said. Equity infusion of Rs 6,750 crore at Idea and Rs 8,600 crore at Vodafone, coupled with monetisation of standalone towers of both companies for an enterprise value of Rs 7,850 crore, provides the company a strong cash balance of over Rs 19,300 crore post payout of Rs 3,900 crore to the Department of Telecom. The company, it said, can also monetise an 11.15 per cent stake in Indus for Rs 5,100 crore. It would have a net debt of Rs 1,09,200 crore.

Balesh Sharma, CEO, Vodafone Idea Ltd, said, “As India’s leading telecom operator with two popular and loved brands, the company has the scale and resources to ensure sustainable customer choice and introduce new technologies.”

For Vodafone, whose experience in India has been rocky, the deal is a landmark. It entered India in 2007 after acquiring a majority stake in Hutchison Essar - later acquired outright - for $ 7.4 billion. Five years later, it was hit by a $ 2.5 billion retrospective tax charge that remains the subject of international arbitration. Intense price competition forced the company to take two write-downs totalling $ 6.6 billion.