Vodafone India and Idea Cellular have finalised a mega merger deal, creating India’s largest telecom company. In one of the most competitive markets in the world, Reliance Jio, upon its arrival, completely changed it. This forced telecom giants like Vodafone India and Aditya Birla group firm Idea Cellular to merge in order to thrive and compete. Together they have created the country’s largest telecom services provider which can boast of a customer base of more than 394 million. This move is a ‘scheme of amalgamation’ of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with Idea Cellular. Meanwhile, the finalisation of the partnership will take some time and the transaction is subject to crucial approvals from concerned authorities, like RBI, SEBI, Department of Telecom and more.
Network providers in the country have been seeking consolidation following the move by Reliance Jio Infocomm Ltd, supported by billionaire Mukesh Ambani, where it introduced free services in September 2016, while undermining industry revenue. It is the competitive pressure which has created the alliance between Idea and Vodafone. The decision, in order to get executed, will require the companies to shed some spectrum and subscribers to make sure that the regulatory approvals under the competition rules in India, are complied with. If you are a Idea Celluar and/or Vodafone subscriber, or even a network services user, here are ten things you should know about the deal.
1. This move will create India’s biggest telecom services provider with a customer base of over 394 million.
2. Upon the amalgamation becoming effective, the entire business of Vodafone India Limited (VIL) and Vodafone Mobile Services Limited (VMSL), excluding VIL’s investment in Indus Tower Limited, its international network assets and information technology platforms, will vest in Idea.
3. The turnover of Vodafone India is Rs 5,025 crore and of VMSL is Rs 40,378 crore. Idea Cellular’s turnover is Rs 36,000 crore. The net worth of VIL is Rs 12,855 crore, VMSL’s Rs 3,737 crore and of Idea Cellular is Rs 24,296 crore.
4. According to TRAI data, Vodafone’s market share was 18.16 percent with 204.68 million mobile customers in December 2016 and that of Idea was 16.9 percent with 190.51 million. At present, Airtel with a market share of 23.58 percent and a customer base of 265.85 million is the country’s largest telecom player.
5. The implied enterprise value is Rs 828 billion (USD 12.4 billion) for Vodafone India and Rs 722 billion (USD 10.8 billion) for Idea.
6. Idea and Vodafone in a joint statement said that merged entity will be jointly controlled by Vodafone and Aditya Birla group as per shareholders agreement. Vodafone will own 45.1 percent of the combined company after transferring a stake of 4.9 percent to the Aditya Birla group for Rs 3,900 crore in cash concurrent with completion of the merger. Idea will hold 26 percent of the combined entity while the rest will be owned by public shareholders.
7. The statement said that if Vodafone and the Aditya Birla Group’s shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.
8. Given the present spectrum holding, revenue and subscriber base, both the companies need to work on synergy to comply with rules.
9. According to the merger and acquisition rules, an entity should not hold more than 25 percent spectrum allocated in a telecom circle and 50 percent of spectrum allocated in a particular band in a service area. The merged entity should also not have more than 50 percent revenue and subscriber market share.
10. CLSA estimated that the excess spectrum which would need to be surrendered or sold off is valued around Rs 5,400 crore and for the merger both the companies will also have to shell out Rs 5,700 crore for liberalising radio waves that they were allocated administratively.
(with agency inputs)