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Vodafone alters strategic course as it merges its India operation with Idea

21 March 2017, 01:05 | Taylor George

Vodafone Group has agreed to combine its Indian unit Vodafone India Ltd with Aditya Birla Group's Idea Cellular Ltd., paving the way for creating the country's largest - and one of the world's biggest - wireless providers.

The combined Vodafone-Idea group would India's largest telecom operation with nearly 400 million customers, or 35 percent market share.

The deal comes as competition in India's wireless market, where a cellular plan can cost less than $3 a month, cranked up even further late past year when Mukesh Ambani, the country's richest man, started offering nearly six months of free mobile services to promote his new carrier.

Telecom sector slipped, with Idea Cellular's stocks plunging by nearly ten per cent on Monday - a day of major merger announcements in the telecom space.

While the two sides will together decide on the CEO, Idea's Himanshu Kapania is expected to steer the combined operations; the choice of chief financial officer will be Vodafone's. The merger, subject to regulatory approvals, will exclude Vodafone's 42 percent stake in Indus Towers.

Birla said the fund for picking up 4.9 per cent of Vodafone stake for Rs 3,874 crore will come from the promoters, and not from Idea.

The merged entity will have around a 406 million subscriber base, replacing the current dominant player Bharti Airtel (around 269 million customers).

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Will Vodafone's new Idea work?

An amalgamation with Vodafone India is the right step for Idea Cellular and its investors given the synergies at a time competitive pressure is intensifying.

The merger values Vodafone India at 828 billion rupees ($12.4 billion) and Idea at 722 billion rupees ($10.8 billion), the statement said.

Vodafone India will be deconsolidated by Vodafone and reported as a joint venture post-closing, reducing Vodafone Groups net debt by around United States dollars 8.2 billion.

In a note today, Neil Wilson, senior market analyst at ETX Capital said: "The fact that Reliance Jio is to start charging for data from April 1st is good news for rivals (and Reliance shareholders), but even if it shows you can't keep giving it away indefinitely, prices will remain very low and we can still expect its cheap deals to cause heavy losses for rivals".

Colao also said the merger makes possible synergies of United States dollars 10 billion.

It also left competitors scrambling to match the deep pockets of Jio, which is backed by India's hugely wealthy energy-to-chemicals conglomerate Reliance Industries, and caused a rush towards consolidation in the multi-billion-dollar sector. But Vodafone and Idea said they will look to reduce their tower assets exposure, including selling their stakes in the joint venture.



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