Vodafone-Idea merger: India’s largest telecom operator

Posted On Tuesday, 31 January 2017 06:17


Vodafone Plc, the British telecom company has confirmed “ongoing talks” of merger with Aditya Birla Group-owned telecom operator Idea Cellular, to cushion itself against a price war with Reliance

Jio. The merger would make the joint entity the largest telecom operator of the country, with 43% revenue market share in 2018-19, according to Hong Kong-based brokerage firm CLSA. Airtel will have 33%, and Reliance Jio will occupy 13% share. “Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone’s 42% stake in Indus Towers) and Idea,” Vodafone said in a statement. According to sources, Vodafone will hold a sizeable share in the merged entity, and both Vodafone and Idea will have representatives on the board of the company.

Idea, in its statement to the Bombay Stock Exchange, said the company constantly evaluates various opportunities to enhance shareholder value, and is in “preliminary talks” to evaluate these opportunities. “The fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity,” it said in the statement. Last financial year, 2015-16, the combined revenue share of Idea and Vodafone was 42%, while Airtel’s was 31.4%. Together, Idea and Vodafone had 416.8 million subscribers, 70% more than Airtel’s 245.4 million. Vodafone said the merger would change the shareholding structure of the Indian company. “Any merger would be effected through the issue of new shares in Ideato Vodafone and would result in Vodafone deconsolidating Vodafone India,” Vodafone said in a statement.

Vodafone’s indication of the merger made the Indian telecom index rally 9.5%. Idea’s socks gained 29%. In 2015-16, the combined revenue of Idea and Vodafone was Rs 81,052 crore while Airtel reported Rs 60,687 crore. “Together Idea and Vodafone will have more fire-power against Reliance Jio’s competitive moves that has already started a price war,” said Sanchit Vir Gogia, co-founder and chief analyst of Greyhound Research. However, a former telecom regulator said that the merger would require clearance from the Competition Commission of India. The merged entity will also have the highest spectrum holding of all telecom operators in the country, which will make it better placed to offer better data services. Idea has a larger pre-paid customer base and has a strong foothold in the Indian hinterland. Vodafone has high APRU (average revenue per user), many post-paid, customers. In Davos, during the World Economic Forum, Sunil Mittal, chairman of Bharti Enterprise, which owns Airtel, told financial news company, “It’s a perfect match. If you look at it, the match is not bad. But you know I can’t sit on the minds of Vittorio (Colao) or Kumar (Mangalam Birla). The strength and weaknesses match very well. Rural-urban, structured portfolio...makes for a good business case and I would support it.”

News source: The Hindustan Times

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