What is Idea-Vodafone merger: Here’s everything you need to know

The amalgamation of the two telecom giants will put them in a better position to contest a brutal new price war.

By: Express Web Desk | New Delhi | Updated: March 20, 2017 1:25 pm
Idea Cellular, Vodafone, Vodafone India, what is idea vodafone merger, Idea, Vodafone, Idea-Vodafone merger, Idea-Vodafone combine, Reliance Jio, Reliance Jio Infocomm, Aditya Birla group, India news, Indian Express Idea-Vodafone merger: The decision comes months after the launch of Reliance Jio Infocomm threw the mobile industry into turmoil.

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.

With inputs from Reuters and PTI

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  1. I
    Ivan
    Mar 20, 2017 at 2:31 pm
    Exactly. Word will get out that there is no money to be made in telecoms. Long tern development will suffer. The government has to ensure that money can can be made if it wants the telecom sector to be a technology leader. There should space for all kinds of compeors, not just those with deep pockets. Already Indian rates are the cheapest in the world. How is this sector supposed to generate good employment and support D with no profit?
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    1. I
      Ivan
      Mar 20, 2017 at 2:36 pm
      Yes and people who want everything free are unlikely then to pay for 3G or 4G content. They will want free music, free movies etc, putting unnecessary stresses on those industries. No one can compete with free.
      Reply
      1. P
        praveen
        Mar 21, 2017 at 4:37 am
        Dear chetan... the quality of the service now is far better when we paid a large more money for the same service. Ambani did a good job. The end benefit is for the consumer. The service being provided now if far better as they feel... kahin jio mein na chala jai......By the way... Vodaphone services are pretty good.
        Reply
        1. P
          praveen
          Mar 21, 2017 at 4:39 am
          lets wait n watch....its not that way all the time
          Reply
          1. R
            Raj Menon
            Mar 20, 2017 at 2:58 pm
            It is not about getting everything free. With better planning the telcom companies could have created a larger customer base, at cheaper rates. It does not mean extremely low prices. It is a fact that they have been fleecing Indians before whom all of a sudden a door was opened for new technology. The companies have been adopting a hawker-like approach. That is deplorable. I do not hold any brief for Jio. I regard them as another hawker, but Jio has put an end to the extortion that Vodafon, Idea, BSNL and Airtel have been indulging in. There is no difference between a thug who collects hafta in Mumbai and the majority shareholders of India's telcom companies.
            Reply
            1. G
              Girish Rao
              Mar 20, 2017 at 11:41 pm
              Telecom companies for long have fleeced the people with price and poor service quality. Jio had been a great disruptor
              Reply
              1. G
                Girish Rao
                Mar 20, 2017 at 11:48 pm
                Dude the phenyl thing u got a bit carried away.
                Reply
                1. G
                  Girish Rao
                  Mar 20, 2017 at 11:47 pm
                  While I'm no great fan of Reliance but before it entered Indian market airtel and others like gave shoddy service so why blame jio for poor quality. In India business model is different than the world where margins per connection is low but will have more volumes in connections.
                  Reply
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