After announcing their $23-billion merger deal, Kumar Mangalam Birla, chairman, Aditya Birla Group, and Vittorio Colao, CEO, Vodafone Group Plc, spoke to FE’s Vikas Shrivatava explaining its various contours. Excerpts:
Markets have not taken the deal pleasantly with stocks falling more than 9.5% today, can you throw some light on that?
Birla: There is some miss-communication and misunderstanding about the price at which Aditya Birla Group is going to buy the shares, which caused the knee jerk reaction from the markets. Also, I would assume that in such large acquisitions, it takes markets some time to grasp it completely, where the management has taken 100s of hours to arrive at the decision.
How do you plan to sell the deal to the shareholders?
Birla: We believe this deal is based on business fundamentals. We have complimentarity of assets in terms of balance in markets. If Vodafone has a much more dominant position in metros, we have a strong presence in rural and urban India. We together have a combined market share of 41%, while combined customer share would be around 30%, and a pool of spectrum of 1850 MHz. We aim to participate aggressively and more significantly in Prime Minister’s Digital India Vision, and contribute more significantly to governments commitment to financial inclusion plans. It is the business logic that has fundamentally driven this combination. So I believe as for us and for any other shareholder of Idea this will create immense value.
Is there a rethink on the telecom business by the Aditya Birla Group? Is there any plan to exit the business?
Birla: Aditya Birla Group would not have done something like this with a reputed internationally known telecom player, if we were to exit the business. And if I can speak on behalf of Vodafone, it’s a further commitment to the sector in India.
Can we say that the merger got expedited with Reliance Jio’s entry into India?
Colao: I think more than Jio its the arrival of data which has bought this change. If you look at Europe, a lot of consolidation is happening there as data is very capital intensive and costs a lot to companies, so companies go together. This merger was natural because we were so complimentary. We joined hands as we have over time built strong assets, although with different geographic focus, they are very well run with lots of spectrum. Going ahead we will become number one or number two in all circles barring J&K. And in no circle our combined market share would be below 10%. This means we can make money in each circle and re-invest money in each of these circles. Besides, there are players like Airtel, they are market leaders, they are very strong and they are ahead of competition. There are players like Aircel and BSNL. So it’s not just about Jio. India is a very competitive market and will get even more charged up now with us joining hands.
Do you think this deal with Idea will elevate your sense of investment into India, which Vodafone once said is a jewel in its crown?
Colao: India has always been wonderful from the market point of view, brand and customer point of view. However, it has not been equally good from the regulatory point of view because the spectrum have been oversold and prices are very high. Also competition rules have been managed in a very erratic way. Hopefully, this move will create a better industry traction. We see five players in the long term with all having lots of spectrum and capacity to be a big players.
Given the issues Vodafone has faced in past do you think the regulatory issues could be a challenge?
Colao: I dont think regulator can ever be seen as a headwind. They are there to help and allow the industry develop in orderly way. Now, with us coming together I think the regulator will have a real chance to prove and promote sustainable competition.
Why the structure of partnership is so complex when it’s a partnership of equals?
Birla: It is a partnership of equals since Vodafone will be restricted in terms of their voting till we equalise our stake.
Colao: The agreement starts with 45% and 26% and meets somewhere in between over a period of time. The spirit of partnership will be the spirit of equal partnership from day one. We will not vote for the excess shares we hold. When we know how many shares the Birla Group want after that rest will be disposed.