Vodafone, Idea create India's biggest telco

Kristopher Drake
March 21, 2017

Vodafone Group and Idea Cellular moved on long-simmering plans to combine their cellular operations in India, announcing a proposed deal to create the countries largest mobile operator.

The planned combination would create India's largest wireless-network operator with nearly 400 million customers and bolster Vodafone's position in one of the world's fastest-growing telecom markets.

The merger comes after India's mobile industry was thrown into turmoil with the launch a year ago of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman, Mukesh Ambani, as part of his Reliance Industries (RELI.NS) conglomerate. The merger would cut the number of major players in India's telecoms sector down to five, with the new entity taking the top spot, followed by Airtel and Jio. Kumar Mangalam Birla, group chairman of Aditya Birla Group, will be appointed chairman of Idea, whereas Vodafone will have the sole right to appoint the chief executive officer.

Once the merger is complete, the entire business of Vodafone India and Vodaone Mobile Services - excluding Indus Towers' investment, global assets and IT platforms - will vest in the company. It also mentioned that the appropriate indicator of the company's perceived value is not the merger ratio price but the price of Rs 108 at which Idea's existing promoter group will pick up 4.9% in the merged entity.

The combined operations will have nearly 400 million subscribers and a market share of around 37%, as well as a market valuation of roughly $23.2 billion, according to a Vodafone statement.

The merged firm will be worth $23.2 billion, based on the combined enterprise value of $12.4 billion for Vodafone India and $10.8 billion for Idea Cellular, according to Bloomberg News. Birla will take over as chairman of the new entity upon the completion of the deal in 2018. Vodafone and Idea will have to build a much stronger optic-fibre network than they possess today to benefit from the growth in the usage of data among India's smartphone owners. "Idea is strong where Vodafone is weaker and Vodafone is strong where Idea is weaker", Colao pointed out.

Colao also said the merger makes possible synergies of Dollars 10 billion. The entry of Reliance Jio has led to a consolidation in the Indian telecom sector.

Allaying apprehensions on the fate of employees in both companies, Birla assured that they do not foresee "any significant downsizing" post-merger, indicating little chances of job losses in the new entity.

Last month, Bharti Airtel had announced the acquisition of Telenor's India operations in seven telecom circles for an undisclosed amount.

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