Vodafone to merge its India unit with Idea Cellular

21 March, 2017, 01:08 | Author: Valerie Burke

MUMBAI Britain's Vodafone Group (VOD.L) and Idea Cellular (IDEA.NS) agreed on Monday to merge their Indian operations to create the country's biggest telecoms business in a bid to contest a brutal price war sparked by new rival Reliance.

According to Vodafone, the new entity (whose name and brand is still to be determined) will have nearly 400 million customers, a 35 per cent market share and a 41 per cent revenue share.

The deal underscores how India's mobile industry is being transformed by the launch previous year of Reliance Jio Infocomm's 4G mobile broadband network.

The confirmation ended months of speculation that the two operators were ready to sign a deal to help fend off the Mukesh Ambani-backed Reliance Jio, whose recent arrival has shaken up India's ultra-competitive mobile network market.

Idea would have the sole right to appoint the chairman, while Vodafone would appoint the chief financial officer.

Vodafone Group will sell a 4.9% stake in the combined firm for INR38.7 billion ($580 million) to holding companies controlled by Kumar Mangalam Birla, the chairman of Idea's lead shareholder Aditya Birla Group.

Vodafone will keep its 42 per cent consideration in Indus Towers out of the merger process.

An amalgamation with Vodafone India is the right step for Idea Cellular and its investors given the synergies at a time competitive pressure is intensifying.

Idea will hold 26 percent in the combined company and the merger will take up to two years to complete.

Idea's board has approved the deal, while Vodafone Group CEO Vittorio Colao described it as a "momentous" opportunity for the sector in India, trumpeting the benefits afforded by the huge increase in spectrum and claiming that the deal "creates a better industry structure". "Idea is strong where Vodafone is weaker and Vodafone is strong where Idea is weaker", Colao pointed out.

The combined operations will have nearly 400 million subscribers and a market share of around 37%, as well as a market valuation of roughly $23.2 billion, according to a Vodafone statement.

But both Idea and Vodafone said they would use their respective stakes in Indus Tower as well as standalone tower assets to reduce debt. Rahul Khullar, Ex Chairmain TRAI, too shared his views on the business news channel and said, "It looks like every party is a victor in Idea-Vodafone India merger on face value".

Colao said on Friday the pending case, with India demanding more than $2 billion in taxes, will not affect the deal, which needs regulatory approval.

"Consolidation is a much anticipated and very welcome development in this beleaguered telecom sector".

Last month, Bharti Airtel had announced the acquisition of Telenor's India operations in seven telecom circles for an undisclosed amount.

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