Vodafone, Idea may 37% stake each in merged unit; public to hold remaining 26%

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Published: February 27, 2017 5:22:42 PM

Vodafone Group of the UK and Aditya Birla group of India may hold equal stakes at 37% each in the proposed merged entity to be formed after the merger of Vodafone India and Idea Cellular, with the public holding the remaining 26% , ET Now reported.

Birla group may trim its financial services portfolio to fund the deal, ET Now reported, adding that Idea Cellular is looking to sell its tower business to trim acquisition cost.

Vodafone Group of the UK and Aditya Birla group of India may hold equal stakes at 37% each in the proposed merged entity to be formed after the merger of Vodafone India and Idea Cellular, ET Now reported citing unidentified sources. Public may hold the remaining 26% stake in the company, ET Now said.

Currently, Aditya Birla group holds about 40% equity stake in Idea Cellular.

Birla group may trim its financial services portfolio to fund the deal, ET Now reported, adding that Idea Cellular is looking to sell its tower business to trim acquisition cost. Idea Cellular has equity stake in Indus Towers, which is a joint venture between Idea, Bharti Airtel and Vodafone India. Selling the tower assets would help Idea Cellular reduce debt and boost valuations ahead of the merger.

Earlier this month, India’s second-largest telecommunication services provider Vodafone confirmed it is in talks for an all-share merger with the third-largest operator Idea Cellular, in the first consolidation move in the Indian telecom industry reeling under the pressure of intense competition from Reliance Jio’s free service offers. The proposed merger could give both the companies the required scale to take on the heightened competition.

Vodafone is reported to have already appointed professional services firms Deloitte and EY to carry out due diligence for the proposed merger. Both the companies have set up the teams for due diligence and expect to complete it soon.

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The due diligence teams would identify potential areas of value erosion from the merger and would also look for any tax liabilities arising out of combining the two firms. The announcement of the merger is expected later this week, according to various news reports.

A possible Vodafone-Idea combine, with a total subscriber base of 39 crore, will surpass Bharti Airtel as the largest telecommunication company, and will be far ahead of Reliance Jio’s 10 crore. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA said. The two operators complement each other, with Vodafone having strong presence in urban areas and Idea being an established player in the hinterland. The new capital that Vodafone brings in may be used to pare the substantial debt that Idea has on its books.

However, the combined entity will breach the spectrum holding limits allowed under the rules, and will have to shed radio bandwidth worth about Rs 6,000 crore. The companies will likely give an undertaking to the government on divesting excess spectrum, ET Now reported.

 

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