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Vodafone Group of the UK and Idea Cellular of the Aditya Birla group on Monday agreed to merge their operations in India in a $23 billion deal, creating the country’s biggest telecom company with a customer base of 400 million and overtaking Airtel which has a customer base of 266 million. The merged entity will have revenue of over Rs 80,000 crore, translating into a 43 per cent share by revenue and 40 per cent by active subscriber base. “The merger pegs implied enterprise valuation of Rs 82,800 crore ($ 12.4 billion) for Vodafone India and Rs 72,200 crore ($ 10.8 billion) for Idea,” according to an exchange filing by Idea. 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. Idea and Vodafone said the merged entity will be jointly controlled by Vodafone and the Aditya Birla group as per shareholders’ agreement.
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. Idea shares, which initially shot up to Rs 123.75, fell by 9.55 per cent to Rs 97.60 on the BSE after the merger announcement on Monday. The merged entity, which will come into force over the next two years, will be headed by Kumar Mangalam Birla as chairman. Vodafone will have its nominee as the chief financial officer, Vodafone CEO Vittorio Colao said.
Gautam Duggad, Head- Research, Motilal Oswal Securities, said, “the deal is at 1:1 share swap which is in line with our expectations. Vodafone has received equal shareholding in the merged company. Thus at the current price of Rs 110, the market capitalisation of the merged entity would be Rs 78,900 crore. The combined debt of the merged entity would be Rs 107,900 crore. Thus the combined enterprise value would be Rs 1,86,800 crore.”
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 Trai data. Airtel, with a market share of 23.58 per cent leads the market both in terms of revenue and customer base.
Ruling out any chance of the lingering tax dispute with the government to affect the merger process, Colao also said both the companies will have three representatives each on the board of the new company. The merger makes possible synergies of $ 10 billion and both the brands, considering their strengths, will continue to operate separately. Colao and Birla said over a period, both companies 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.
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.