Vodafone India and Idea have agreed to merge to create the largest telecoms operator in India. The transaction is to be implemented as a merger of equals that will result in joint control of the combined company between Vodafone and the Aditya Birla Group.
Under the terms of the agreement, Vodafone will combine its subsidiary Vodafone India (excluding its 42% stake in Indus Towers) with Idea, an Indian stock exchange-listed company. Vodafone stated that the merger ratio is in line with recommendations from independent valuers, with an implied enterprise value of INR828 billion ($12.4 billion) for Vodafone India and INR722 billion ($10.8 billion) for Idea, excluding its stake in Indus Towers.
On completion of the transaction, Vodafone will own 45.1% of the combined company, after transferring a stake of 4.9% to the Aditya Birla Group for approximately INR39 billion ($579 million) in cash, concurrent with completion of the merger. The Aditya Birla Group will own 26.0% of the new company, with the right to acquire additional shares from Vodafone under an agreed mechanism, with a view to eventually equalising the shareholdings over a period of 4 years.
Vodafone stated that the transaction will establish a complementary combination that will be India’s largest telecoms operator with the most extensive mobile network and a commitment to support the Indian government’s Digital India initiative. The combination will result in an operator serving approximately 400 million customers, with a 35% market share in terms of subscribers and a 41% share in terms of revenue. The combined company will hold 1850 MHz of spectrum, including around 1645 MHz of liberalised spectrum acquired through auctions
The combination is expected to enable significant cost and capex synergies with an estimated net present value of approximately INR670 billion ($10 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of INR140 billion ($2.1 billion) on an annualised basis by the fourth full year after completion of the transaction.
Completion of the transaction, which is subject to approvals from relevant regulatory authorities, other customary closing conditions and approval by Idea shareholders, is expected in the 2018 calendar year. After closing, Vodafone India will be deconsolidated by Vodafone, reducing the group’s net debt by approximately $8.2 billion.
