India Tycoon Shuns Investment Banks in $23 Billion Vodafone Deal

Cheryl Sanders
March 21, 2017

The combined Vodafone-Idea group would have nearly 400 million customers, or 35 percent market share, with an implied enterprise value of 828 billion rupees ($12.66 billion) for Vodafone and 722 billion rupees for Idea. In India, rising costs and fierce competition have weighed on the finances of industry.

This is the second merger in the sector in as many months. However, vodafone will have the sole right to appoint the chief financial officer.

The report indicated that British firm would have a stake of 45.1 percent in the merged entity after the company transfers about 4.9 percent to Idea promoters and their affiliates for $592.15 million cash.

Once the merger is complete, the entire business of Vodafone India and Vodaone Mobile Services - excluding Indus Towers' investment, worldwide assets and IT platforms - will vest in the company.

"The merger pegs implied enterprise valuation of Rs 82,800 crore (USD 12.4 billion) for Vodafone India and Rs 72,200 crore (USD 10.8 billion) for Idea", according to an exchange filing by Idea.

This means the combined entity of Vodafone and Idea Cellular, which are India's number 2 and 3 mobile players, respectively, will overtake Bharti Airtel in a bid to tackle a raging price war in the world's second-largest market. The UK-listed firm will retain the largest stake in the merged entity with a 26 per cent share, though Idea as the option to buy up shares in the future.

Indicating Vodafones intention of gradually exiting the country, Colao and Birla said that over a period, both will have equal stakes in the merged entity.

"Idea is strong where Vodafone is weaker, Vodafone is strong where Idea is weaker".

He did not expect major regulatory hurdles to the deal as he ruled out any chance of the lingering tax dispute with the government to affect the merger process. Vodafone India will be deconsolidated by Vodafone and reported as a joint venture, reducing Vodafone Group net debt by approximately $8.2 billion.

Colao also said the merger makes possible synergies of United States dollars 10 billion.

Colao also said the merger makes possible synergies of Dollars 10 billion, adding that both brands, considering their strengths, will continue to operate separately.

Norwegian multinational Telenor announced last month that it was selling up to Airtel, saying the amount of money needed to be competitive in the multi-billion-dollar sector would not offer an acceptable level of return.

The deal gives both Idea and Vodafone greater heft in competing with Reliance Jio Infocomm's pan-India 4G services that garnered over a 100 million customers in less than six months since launching previous year.

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