Vodafone – Idea Merger: Officially Approved

The proposed merger between Idea Cellular and Vodafone India has been officially approved by the boards of both companies. The merger will be effected through the issue of new shares in Idea to Vodafone and is expected to be completed in 2018. The merger between Idea Cellular and Vodafone India will create India’s largest mobile phone company with about 400 million customers, 35% customer market share and 41% revenue market share, as per the The Economic Times.

Kumar Mangalam Birla, who is the Chairman of the Aditya Birla Group, will be the head of the new merged entity.

As per the agreement, Vodafone will hold 45.1% stake and Kumar Mangalam Birla and other promoters of Idea Group will hold 26% stake of the new combined entity and the rest will be owned by the public. The proposed merger will create an entity with revenue of approx 77,500 – 80,000 crore besides eliminating duplication of spectrum and infrastructure capex, the rating agency.

Both the promoters of Idea and Vodafone will have the right to nominate three directors each into a Board of the combined entity which will be comprised of 12 directors, six will be independent.

Though, Idea will have the sole right to appoint Chairman of the combined entity, while Vodafone will have the sole right to appoint the Chief Financial Officer (CFO).

Both Vodafone and the Aditya Birla Group will jointly appoint the CEO and Chief Operating Officer (COO).

As stated by the agreement, Idea promoters will have the right to acquire an additional 9.5% in the company. If both Idea and Vodafone do not have equal shareholding by the end of the 4th year, after merger is completed, Vodafone will have to reduce its holding to equalise its ownership over the 5th year. Until the share equalisation is complete, additional shares held by Vodafone will be restricted and votes will be exercised jointly,

According to the India Ratings and Research, the combined entity will create India’s largest telecom firm with a revenue share of around 40% and a subscriber base of over 380 million.

Why Idea and Vodafone will have to sell their Tower Businesses For Merger

Prior to this merger, both Idea and Vodafone will have to sell their respective tower businesses because of the following reasons. According to the Mergers and Acquisitions (M&A) policy –

  1. The merger entity should not hold more than 25% spectrum allocated in a telecom circle and 50% on spectrum allocated in a particular band in a service area.
  2. In a bid to spur M&A in the crowded telecom sector, the merged entity should also not have more than 50% revenue and subscriber market share in a particular circle.

As per the global brokerage house CLSA report, the merged entity would breach revenue market share, subscriber and spectrum caps in five markets. As per present scenario, the combined entity will breach spectrum cap in 900 Mhz band in Maharashtra, Gujarat, Kerala, Haryana and UP West and in 2500 Mhz band in Maharashtra and Gujarat. The 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 liberalizing radiowaves that they were allocated administratively.

Thus, both Idea and Vodafone will have to consider the combined spectrum they hold in order to avoid breaching the regulatory limit.
(With PTI Inputs)

Megha Jain

Engg & Freelance Author

Straight forward