Vodafone, Idea Cellular announce merger to become India's largest telecom operator

Yolanda Curtis
March 20, 2017

In a separate BSE filing, Idea Cellular said it plans to raise Rs 500 crore through non-convertible debentures on private placement basis.

Global brokerage firm CLSA has estimated that the Vodafone-Idea tie-up would command a revenue market share of 43 percent by the start of the 2019-20 financial year, ahead of Airtel on 33 percent. The agreement excludes Vodafone's 42 percent stake in Indus Towers.

"The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world class 4G networks to villages, towns and cities across India", Vodafone Group chief executive Vittorio Colao said in the statement.

Vodafone will own a 45.1 per cent stake in the the merged entity following the transfer of about 4.9 per cent of shares to promoters of Idea and and its affiliates for 38.74 billion rupees ($592.15 million) in cash, Idea said in a statement.

Promoters of Idea will hold 26 per cent stake in the company and the remaining will be held by the public.

Idea said the companies expected cost and capex synergies of about $10 billion in net present value after integration costs and spectrum payments. Post-closing, combined company will be reported as a JV by Vodafone and accounted for under equity method.

The merger, while subject to several regulatory approvals, comes at a time when the telecom sector is going through intense competition, with Mukesh Ambani-led Reliance Jio throwing down the gauntlet to established operators. The telecom giant stuck to its demand to retain CEO and CFO positions in the merger entity and the from what we have learnt so far, a deal has been struck with Kumar Mangalam Birla being named as the chairman.

Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders' agreement. The merged entity will account for over 40 per cent active subscriber base and will hold 25 per cent of allocated spectrum.

The merged entity should also not have more than 50 percent revenue and subscriber market share.

- Spectrum holdings: the combined entity will have 1850 MHz, including 1646 MHz of liberalised spectrum acquired through auctions.

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