Idea Approves Merger With Vodafone To Create India's Largest Telecom Operator With 40 Crore Users
Kumar Mangalam Birla owned Idea Cellular said its Board has approved of a merger with Vodafone India. The merger will create Indias largest mobile phone company with about 400 million customers. Idea stock which had jumped over 15% in early trade was down 8% at Rs9945 on the BSE at 1036 am.
Kumar Mangalam Birla owned Idea Cellular said its Board has approved of a merger with Vodafone India and its wholly owned subsidiary Vodafone India Mobile Services, which will create India's largest mobile phone company with about 400 million customers, 35% customer market share and 41% revenue market share.
BCCL
Vodafone India's business barring its investments in Indus Towers will vest in the new entity, which will be renamed at a later stage, the companies said a statement Monday.
Vodafone will own 45.1% in the combined entity after transferring 4.9% to the promoters of Idea Cellular for Rs 3,874 crore in cash post the merger. Kumar Mangalam Birla and other promoters of Idea Group will hold 26% and the rest will be owned by the public, said the statement.
Prior to completion of the transaction, Vodafone and Idea intend to sell their standalone tower assets and Idea¡¯s 11.15% stake in Indus Towers to reduce leverage in the combined company. Vodafone will also explore strategic options for its 42% stake in Indus Towers; potential options include either a partial or a full disposal.
The Idea stock, which had jumped over 15% in early trade, was down 8% at Rs99.45 on the BSE at 10.36 am, as investors booked profits. The merger ratio is based Idea's price at Rs 72.5 a unit.
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Reuters
The companies added that the implied enterprise value is Rs 828 billion or $12.4 billion for Vodafone India and Rs 722 billion or US$10.8 billion for Idea, excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA.
Vodafone will contribute Rs 2,500 crore ($369 million) more net debt than Idea, upon closure of the merger. Based on Idea's net debt of Rs 52,700 crore at December end, Vodafone would contribute Rs 55,200 crore of net debt to the merged entity.
¡°This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the Government¡¯s Digital India vision a reality," said Aditya Birla Group Chairman, Kumar Mangalam Birla.
He added that Idea and Vodafone will together create a very valuable company given our complementary strengths.
Vodafone Group 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 ¨C such as mobile money services ¨C that have the potential to transform daily life for every Indian."
"We look forward to working with the Aditya Birla Group to create value for all stakeholders.¡±
The merger should be completed within 24 months, that is in 2018, subject to approvals from shareholders, creditors, stock exchanges, SEBI, the telecom department and Competition Commission of India.
The merger is not subject to approval from Vodafone Group's shareholders. The pact also has a break-fee of Rs 3,300 crore (US$500 million) that would become payable under certain circumstances.
Reuters
The companies will announce more details of the merger in a press conference at 10:50 am today.
Vodafone India will be deconsolidated, reducing Vodafone Group's net debt by Rs 552 billion or $8.2 billion and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA. The transaction is expected to be accretive to Vodafone¡¯s cash flow from the first full year post-completion.
Promoters of Idea and Vodafone will have the right to nominate three directors each into a Board of the combined entity which will be comprised of 12 directors, six will be independent. Idea will have its nominee as chairman while CFO will be put forth from Vodafone's side. Both CEO and COO will be a joint decision taken by both parties, said the statement.
As per the agreement, promoters of Idea have the right to acquire up to a 9.5% additional stake from Vodafone with a view to equalise shareholding overtime. If both Idea and Vodafone do not have equal shareholding by the end of the 4th year, after merger is completed, Vodafone will have to reduce its holding to equalise its ownership over the 5th year. Until the share equalisation is complete, additional shares held by Vodafone will be restricted and votes will be exercised jointly, the statement added.
While the merger will result in creation of the largest telecom entity with pan-India 3G and 4G footprint, it will have sufficient spectrum to compete with major operators while offering attractively priced mobile services to consumers, specially in the wake of competition from Reliance Jio.
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BCCL
It would hold 1,850 MHz, including circa 1,645 MHz of liberalised spectrum acquired through auctions 7 . It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 3G carriers and 129 4G carriers across the country.
It will leverage customer affinity for Vodafone and Idea brands, that have combined consumer base of about 390 million, it will create substantial cost and capex synergies for both companies - an estimated net present value of around US$10 billion after integration costs and spectrum liberalisation payments, with estimated run-rate savings of US$2.1 billion on an annual basis by the fourth year post completion. Operating cost savings represent 60% of the expected run-rate savings.
The telecom industry is going through a consolidation phase with many players looking for a merger. The Vodafone Idea alliance will create the largest telco in the country pushing Sunil Mittal's Bharti Airtel to the second spot.
ET on Monday had reported that Vodafone CEO Vittorio Colao will be arriving this week to discuss the key issues related to the merger besides bolstering staff morale that¡¯s been undermined by fears of job losses after a union, said the people cited above.
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