Highlights Of Vodafone-Idea Merger

Highlights Of Vodafone-Idea Merger

Introduction

India's telecom industry, as well as the whole economy, has witnessed a landmark amalgamation move initiated by the two telecom giants in the Indian market Vodafone India and Idea cellular which was seeded back in 2016 and being realised now, resulting in the formation of a Herculean entity with worthiness of around 23 billion USD. It would become India's largest mobile telephone and data service provider with a 39.25 crore customer base offering cut throat competition to Bharti Airtel, which has so far enjoyed a whooping 26.44 crore customer base and the all obvious Jio ferver that harnessed a customer base of 7.2 crores out of the blue via lucrative voice call and 4G data packages. The merger and amalgamation would generate around 35% customer market share and 41% revenue market share for the merged entity.

Key points of the merger :

  • Vodafone will own 45.1 % stake in the combined entity while Kumar Mangalam Birla and other promoters of the Idea Cellular group will hold 26 % stake. 4.9 % of the stake will be transferred to the Aditya Birla group of Idea Cellular for Rupees 3874 crore in cash right after the merger. Over due course of time Idea Cellular and its promoter Aditya Birla group will buy another 9.5 % of the stake over a period of five years from Vodafone to realize the motto of 'merging of equals'. Rest of the ownership rights will be vested with the public.
  • Prior to materialising the transactional arrangement both Idea and Vodafone are intending to sell off their stand alone tower assets which might be a partial or full disposal of investments.
  • The merger scheme will be executed within 24 months period of time that is by the year of 2018 with apt approvals from shareholders, creditors, stock exchanges and concerned regulatory authorities. The naming of the new telecom entity has been reserved for a future date, based on ample consultations with the relevant stakeholders.
  • The worth of the implied telecom entity is Rupees 828 billion for Vodafone India and Rupees 722 billion for Idea.
  • The main driving force behind such a grandiose merger is to develop high-quality digital infrastructure that would aid the Digital infrastructure that would aid the Digital India vision. It is also proposed to scale up sustainable consumer choice in a competitive market via expanding new technologies including mobile money services.
  • With regard to the constitution of a Board of Directors for the new telecom entity, promoters of Idea cellular and Vodafone India will have the right to nominate three directors each into the board constituting six of them while the remaining six will be Independant directors. Kumar Mangalam Birla of Aditya Birla group has been nominated as the new chairman while, Thomas Reisten of the Vodafone india has been nominated as the Chief Financial Officer. Similarly Balesh Sharma of Vodafone India has been niminated as the Chief Operating Officer, while the position of CEO will be assigned based on joint consultations and decisions made by both the parties.
  • The deal will see to it that Aditya Birla group, the erstwhile promoter of Idea Cellular has more stake in the merged entity while Vodafone having quite a lesser stake making it the merger among the equals. It will be realized by subsequently raising Idea Cellular's stake in the merged entity within a five year time frame.
  • Though the nations number 2 telecom player Vodafone has teamed up with the third largest, Idea Cellular, to form a merged mammoth entity to field against Bharati Airtel and Reliance Jio, they will continue their operations in India as independant brands as its managerial stalwarts identify themselves as Complementary to each other.

Conclusion :

  • Following the poor financial health of the telecom sector most of the players in the same were in a consolidation mode. Reliance Communications owned by Anil Ambani, Aircel and MTS are working on a probable merger while Bharati Airtel recently announced that it was taking over Telenor's India business. Since the inception of Idea and Vodafone onto the Indian market back in 2007, none of the two has tasted the bitterness of loss in terms of market revenue and market share till the roll out of Reliance Jio Infocomm in September 2016. Though the merger plans seems as pretty as the the icing of a cake, implementation of the same is not going to be a cakewalk as the proposed new entity has to overcome several hurdles especially in the form of approvals of the concerned regulators and make it to the proper wrap up of the deal.
  • It is also expected that the merger move will soon push more merger moves in the telecom sector. Though the merging would make the new entity the number 1 telecom operator in the country and the second telecom operator at the international level after China Mobile, it is anticipated that it would cause messier price wars between the telecom enterprises in near future with the emerging Indian market being dominated by the newly merged Idea- Vodafone entity, Reliance Jio, Bharati Airtel and BSNL. The move has been branded as quite a solace to both Idea Cellular and Vodafone, shaken up by the disruptive entry of Jio into the telecom segment, particularly for Vodafone which is still in the process of fighting the Rupees 20,000 crore tax dispute with the Indian authorities. Other perks and advantages that would trickle down to the customers via the telecom sector includes improvement in network infrastructure,operational efficiencies, streamlining of tele-data services, distributional centres as well as systems.
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