Vodafone, Idea sign $23 billion merger deal

21/03/2017 05:30 AST

Britain’s Vodafone Group and Idea Cellular agreed on Monday to merge their Indian operations in a $23 billion deal, creating the country’s biggest telecoms business after the entry of a new rival sparked a brutal price war.

The combined entity would have almost 400 million customers, overtaking market leader Bharti Airtel to account for about 40 per cent of revenue of the world’s second-biggest mobile phone services market by users after China.

The deal shows how India’s mobile industry is being transformed by the launch of Reliance Jio Infocomm’s 4G mobile broadband network last year.

Built at a cost of more than $20 billion by India’s richest man, Mukesh Ambani, Jio has offered free services for months.

That has forced India’s three biggest operators - Bharti, Vodafone and Idea - to slash prices and accept lower profits, and sparked a wave of consolidation.

Vodafone, the world’s second-largest cellphone operator, had previously sought to leave joint ventures it did not control but Chief Executive Vittorio Colao said the group had to be realistic in such a challenging market.

“This improves the industry structure and it also equips us and Idea to be much more competitive in the future,” he told reporters.”I have no doubt that the Indian market will remain competitive but nothing can be free forever and we will be in a better position.”

The two companies, which said in January that they were in talks, will have to shed spectrum in some areas to meet India’s rules, although Colao said it would be “small”.The deal is expected to close in 2018.

Shares in Idea rose as much as 14.3 per cent after the news but then fell 10 per cent to 97.70 rupees as traders said the implied deal price for Idea was well below the stock’s closing price of 108.10 rupees on Friday. Vodafone shares were up 0.7 per cent at 1415 GMT.

Idea said the rough deal price worked out at 72.5 rupees per share, adding that this figure was for illustrative purposes and was not the actual price.

Under the deal, Vodafone will own 45.1 per cent of the merged entity, after it transfers about 4.9 per cent to promoters of Idea or their affiliates for 38.74 billion rupees ($592.15 million) in cash, Idea said.

Aditya Birla Group, the majority owner of Idea, will own 26 per cent while other shareholders will own the remaining 28.9 per cent.

Aditya Birla and Vodafone eventually aim to own an equal share of the joint venture, with a combined enterprise value of $23.2 billion.

Vodafone, which will cut its net debt by about $8.2 billion with the deal, has endured a tumultuous ride since it entered India in 2007, with a high-profile tax battle and a long-delayed Indian listing.

The South Asian country contributes more than 10 per cent of its revenues.

The Gulf Today