In a major reform of the telecommunication industry triggered by Reliance Jio, fresh development has been that of Aditya Birla led Idea Cellular and British telecom company Vodafone announcing a merger.
Vodafone is currently the second largest service provider in India followed by Idea. The companies claim to provide the widest network in the country and pan-India 3G/4G footprint after the merger. They intend to create the widest consumer base with nearly one on every three Indians using the combined brand. Even experts believe that the combined entity of Vodafone and Idea will be in a better position to compete with Bharti Airtel and Reliance Jio.
The merger is expected to complete by the next year. The deal is subject to approval from different regulatory bodies.
Here are ten things you must know about the merger:
1) The board of directors of Idea Cellular at its meeting held today approved the “scheme of amalgamation of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with the company”, Idea said in a regulatory filing. Vodafone India has an annual revenue in excess of Rs. 46,000 crore while Idea Cellular over Rs. 36,000 crore.
2) Vodafone will own 45.1 per cent of the merged entity, after it transfers about 4.9 per cent to promoters of Idea for Rs. 3,874 crore in cash, Idea said. The deal excludes Vodafone’s 42 per cent stake in telecom tower company Indus Towers.
2) The Aditya Birla group will own 26 per cent of the entity and will have the right to acquire more shares from Vodafone under a mechanism with a view to equalising shareholdings over time.
4) Both the companies expect synergy benefits of Rs. 67,000 crore over the future.
5) Promoters of Idea will have the sole right to appoint chairman of the merged entity while Vodafone will appoint the chief financial officer. The appointment of a chief executive officer and a chief operating officer would require the approval of both companies. Both Idea Cellular and Vodafone would get the right to nominate three board members each.
6) The aggressive entry of Reliance Jio has led to a brutal price war, hurting the margins of other players and also spurring a consolidation in the sector. Bharti Airtel reported its lowest profit in four years in the October-December quarter while Idea Cellular posted its first-ever quarterly loss for the same period.
7) Bharti Airtel had earlier this year announced an agreement to buy Norwegian company Telenor’s operations in six Indian States. Reliance Communications has already entered into an agreement to merge its wireless business with rival Aircel.
8) The merger between Vodafone and Idea cellular is seen positive for the telecom sector and the combined entity. “The combined entity’s operating margins will improve by around 3 percentage points due to cost synergies in networking and selling, general and administrative expenses,” India Ratings said in a report.
9) Hemant Kanawala, head of equity at Kotak Life Insurance, said he expects fierce price competition among top telecom players despite Jio beginning to charge for services from April. Customers have become habituated to low price points and telecom players can only hope for greater usage by customers, he added.
10) Vodafone, the world’s second-largest cellphone operator, has endured a tumultuous ride since it entered India in 2007, with fierce competition and a high-profile tax battle. Shares in Idea rose as much as 14.25 per cent immediately after the merger news but later gave up all the gains.