12 things you need to know about Vodafone - Idea Cellular merger

12 things you need to know about Vodafone - Idea Cellular merger

Vodafone India's "merger of equals" with Idea will create the largest mobile operator in India, with around 400 million customers, overtaking Airtel, and making it four times the size of Jio.

In a BSE filing Idea said, "The board of directors at its meeting held on March 20, 2017, have approved the scheme of amalgamation of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMIL) with the company subject to necessary approvals".

Vodafone India will be deconsolidated by Vodafone and reported as a joint venture post-closing, reducing Vodafone Group's net debt by around Dollars 8.2 billion.

"The combined entity will become the leading challenger with the scale to compete more effectively", Idea said in the statement.

The report further quoted the CEO saying that the combined entity would "benefit from the strength of both brands, based on an identity and brand strategy, which will be defined in detail in closing".

The all-share merger for both partners excludes Vodafone's 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone deconsolidating Vodafone India.

The company said that the amalgamation will result in creation of India's largest telecom company with widest mobile network in the country with pan 3G/4G footprint. Idea Cellular has a net worth of Rs 24,296 crore and turnover of Rs 36,000 crore. "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", the ratings agency said in a note.

Shares in Idea rose as much as 14.25 percent immediately after the news but reversed course to fall as much as 14.6 percent, as traders expressed concerns about how the merged entity would value Idea's stake.

The merger will result in substantial cost and capex synergies with an estimated net present value of around Dollars 10 billion after integration costs and spectrum liberalisation payments, with estimated savings of USD 2.1 billion annually from the fourth year of the merger. If the Aditya Birla Group does not equalise its stake, Vodafone will reduce its holding in order to equalise its ownership with that of the Aditya Birla Group.

The merger is said to increase competition in the telecom space where players are in a tussle to increase revenue and subscriptions.