Idea Cellular, the Kumar Mangalam Birla-led telecommunications major, agreed on Monday to merge with the Indian unit of the U.K.-headquartered Vodafone Plc, making it a $23 billion giant. The merged entity becomes India’s largest mobile telephony and data service provider with 39.25 crore customers, ahead of the current market leader Airtel, which has a 26.44 crore user base. Both figures are provided by the Telecom Regulatory Authority of India.
Brand strategy
A joint statement issued by Vodafone and Idea said the combined company would have a 35% customer market share and 41% revenue market share. It said the brand strategy for the new firm “will be developed in due course” and “will leverage customers’ affinity for both existing brands, built up over the past decade.”
Kumar Mangalam Birla will be the chairperson of the merged entity. The move, though not surprising, has stoked rumours that the current tariff war, initiated by the Mukesh Ambani-led Reliance Jio’s entry into the high-speed data market in 2016, will possibly come to an end in the near future.
Rajan Mathews, director- general of the Cellular Operators Association of India, said, “There is currently a tariff war in the market which may not be sustainable for long. This has also severely impacted the revenue stream of operators, not just in terms of an increase in cost but also in terms of a marked decline in the revenue stream. All these have put the financial condition of this industry at risk and increased the debt to ₹4.3 lakh crore, also leading to a severe decline in government revenues from the industry.”
He said that in contrast to 13 operators a few years ago, the Indian mobile telecom market is down to “four or five operators.” “Due to the poor financial health of the sector, we are witnessing mergers, acquisitions and combinations of companies like Idea and Vodafone, Aircel and R Comm and MTS. Other companies such as Videocon and Etisalat have already left the industry because of this hyper-competitive pressure,” he added.
| Name | Vodafone+Idea | BhartiAirtel+Telenor | Rcom+Aircel+MTS | R-Jio |
| Subscribers | 392.5 mn | 316 mn | 186 mn | 100 mn. |
| C.M.S . | 35% | 29% | 17% | 9% |
| Revenue | Rs 80,000 cr | Rs 60,300cr | Rs 22700cr | N/A |
| Revenuemarket share | 41% | 33% | 10% | N/A |
| Spectrum | 1850 mhz | 1489 mhz | 883mhz | 1235 mhz |
| EBITDA FY2016 | $3.7 B | $3.3 B | $1.5B | N/A |
| Spectrum investment | $21B | $13B | $4.4B | $7.1B(since April 2010) |
Investment experts said the largest consolidation in the highly competitive Indian telecommunications space will test the ability of both Vodafone and Idea to operate the combined entity as equal partners.
S.P. Tulsian, a leading investment adviser, told The Hindu , on Monday that even as the companies claim it is a “merger of equals,” Idea will have to buy 4.9% stake in Vodafone for ₹3,900 crore ($579 million) in cash when the merger completes, to increase the Aditya Birla Group stake to 26%.
“Besides, the company will have to spend another ₹9,000 crore to bring its stake at par with Vodafone in the combined entity. So, it’s not a merger of equals.”
In a statement on Monday, Aditya Birla Group chairperson Kumar Mangalam Birla said, “For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”
As per the terms of the deal, Vodafone will own 45.1% of the merged entity and Idea will have a 26% stake, while the rest will be owned by public shareholders after the merger, expected to be completed next year.
Idea Cellular has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.
Vodafone Group Plc Chief Executive Vittorio Colao said: “The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies — such as mobile money services — that have the potential to transform daily life for every Indian.”
Vodafone India has been valued at ₹82,800 crore ($12.4 billion), while Idea has been valued at ₹72,200 crore ($10.8 billion) by independent valuers, said a company statement. It added that the new firm will enjoy substantial synergies on cost and capital expenditure synergies with an estimated net present value of approximately ₹67,000 crore ($10 billion) after integration costs and spectrum liberalisation payments, and have an estimated run-rate savings of ₹14,000 crore ($2.1 billion) on an annual basis by the fourth full year post completion.
Shares of Idea Cellular declined, closed down 10.6% to ₹97.6 in a weak Mumbai market on Monday, giving the Aditya Birla Group firm a market capitalisation of ₹35,170 crore. Shares of Vodafone Group Plc. were trading marginally up at £211.5, at the time of writing, on the London Stock Exchange.
