In what appears to be a bid to tackle Reliance Jio’s cruising dominance in the telecom sector, Idea Cellular has announced that it will join forces with Vodafone India within a period of two years. The amalgamation of the two telecom giants will put them in a better position to contest a brutal new price war. With 35 per cent market share, the combined Vodafone-Idea group would be the country’s largest telecom operation. The decision comes months after the launch of Reliance Jio Infocomm threw the mobile industry into turmoil. The Mukesh Ambani-owned company made a sweeping impact with free voice calls and cut-price date services, which forced other competitors to reduce their rates. In a joint statement, Idea and Vodafone said that merged entity will be jointly controlled by Vodafone and the Aditya Birla group as per shareholders agreement.
How much shares will both Vodafone and Idea hold in the combined entity ?
Vodafone will own 45.1 per cent of the joint venture after transferring a stake of 4.9 per cent to the Aditya Birla group for Rs 3,900 crore in cash concurrent with completion of the merger, while Idea will hold 26 per cent. Meanwhile, the rest will be owned by public shareholders.
What all rights will both companies have in the combined entity ?
Promoters of Idea, Vodafone have the right to nominate three directors each, while promoters of Idea have the sole right to appoint chairman. Kumar Mangalam Birla has been appointed chairman. As far as appointment of CEO, COO is concerned, it will require the approval of both promoters of Idea and Vodafone. The British telecom company will have the right to appoint CFO of company. In addition, promoters of Idea will have the right to buy up to 9.5 percent additional stake from Vodafone under agreed mechanism.
What will be the expected outcome of this merger ?
According to the joint statement, the merger will result in substantial cost and capex synergies with an estimated net present value of approximately $10 billion after integration costs and spectrum liberalisation payments, with estimated run-rate savings of $2.1 billion on an annual basis by the fourth full year post completion.
Does this amalgamation require any approvals ?
The transaction is subject to necessary approvals from concerned authorities, which include SEBI, Department of Telecom, and the RBI among others.
How did the stock market behave after announcement ?
Soon after the announcement of merger, shares in Idea shot up as much as 14.25 per cent. However, it declined as much as 14.6 percent, with traders expressing concerns about how the merged entity would value Idea’s stake.