Axiata analysing potential impact from Idea Cellular-Vodafone merger

Posted March 21, 2017

British telecom company Vodafone's Indian unit on Monday announced a merger with Idea Cellular, a local company, creating India's largest telecom operator, with around 400 million customers.

The combined Vodafone-Idea group would have nearly 400 million customers, or 35 percent market share, with an implied enterprise value of 828 billion rupees ($12.66 billion) for Vodafone and 722 billion rupees for Idea.

The merger comes after India's mobile industry was thrown into turmoil with the launch previous year 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 landscape for mobile operators, especially the 4G segment, has changed drastically after Reliance Industries Ltd. launched its Reliance Jio services for free for first three months and then at much cheaper cost. Birla, who will be chairman of the combined business, personally led talks with Vodafone Chief Executive Officer Vittorio Colao, people with knowledge of the matter said.

The merger is structured such that Vodafone Group Plc. will own 45.1 percent of the combined entity after selling a 4.9 percent stake to Aditya Birla Group. The merger, subject to regulatory approvals, will exclude Vodafone's 42 percent stake in Indus Towers.

"The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India", said CEO Vittori Colao.

The combined 394 million subscriber base of India's second and third largest telcos will eclipse Bharti Airtel's 270 million - and catapult the merged company to No 2 spot globally. The UK-listed firm will retain the largest stake in the merged entity with a 26 per cent share, though Idea as the option to buy up shares in the future.

The transaction is expected to close during 2018.

Will Vodafone's new Idea work? Instead, it will use the cash to reduce the group's debt facilities, which have swelled to €41bn.

Colao also said the merger makes possible synergies of United States dollars 10 billion, adding that both brands, considering their strengths, will continue to operate separately.

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

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

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.