Indian billionaire shuns investment banks in $23b Vodafone Idea deal

Kumar Mangalam Birla. Photo: Saanskrut Kumar/Mint

Indian billionaire Kumar Mangalam Birla just pulled off the biggest deal of his career. There won’t be any investment banks sharing in the glory.

The tycoon’s mobile arm, Idea Cellular Ltd., said Monday it will merge with Vodafone Group Plc’s Indian operations to create the largest Indian wireless carrier with a $23 billion enterprise value. Birla, who will be chairman of the combined business, personally led talks with Vodafone Chief Executive Officer Vittorio Colao, people with knowledge of the matter said.

While Vodafone was assisted by a slate of six investment banks — led by Morgan Stanley and Robey Warshaw LLP — Idea Cellular didn’t list any financial advisers in the deal announcement. Birla turned instead to a pool of former bankers he’s brought onto the payroll at his conglomerate, including Aditya Birla Group corporate strategy chief Saurabh Agarwal and head of group corporate finance Ashish Adukia, the people said, asking not to be identified because the information is private.

Birla shunned investment banks because he wanted to avoid any leaks, especially on the details of the transaction structure, according to the people. The billionaire’s internal deal team has been working around the clock for the past two months, pushing through weekends to get an agreement, one of the people said. Idea Cellular met Vodafone officials in London, Dubai and Mumbai to hash out the deal terms, the people said.

“Normally you would have investment banks in a deal of this size which is quite complex,” John Colley, a professor at Warwick Business School who researches mergers and acquisitions, said by phone. “Even if you don’t need new money, you would want the experience of these bankers, and it’s rare not to have them.”

Earning Fees

Though talks first started in July last year, they quickly broke off and didn’t resume in earnest until December, according to the people. Negotiations accelerated after the two companies publicly confirmed in late January they were in discussions for a deal, the people said.

A spokeswoman for Aditya Birla Group declined to comment, while a representative for Vodafone didn’t immediately respond to a request for comment.

Agarwal joined Aditya Birla Group after leaving emerging markets-focused lender Standard Chartered Plc in 2015. He previously headed India investment banking for Bank of America Corp. Adukia came to the conglomerate in 2014 after stints at Morgan Stanley, where he was an executive director, and Citigroup Inc.

The Vodafone deal builds on the record $81.2 billion of acquisitions announced by Indian companies in 2016, according to data compiled by Bloomberg. JM Financial Ltd., a local boutique advisory firm, was the No. 1 adviser on deals in the country last year with a 33.4 percent market share, followed by cross-town rival Arpwood Capital Pvt with 21.6 percent, the data show.

Birla’s desire to avoid outside financial advisers follows the mold of fellow billionaires like Ajay Piramal, who has mostly shunned bankers when seeking acquisitions for his health care to real estate empire in India. That creates an added challenge for the Wall Street firms still stinging from the Indian government’s earlier practice of paying advisers a fee of less than one rupee, equivalent to 2 U.S. cents, for managing equity transactions.

Fierce Competition

The deal with Idea Cellular will help Vodafone unload an unprofitable business that has prompted it to announce $12 billion of additional investments and writedowns as it fights competition from new rival  Reliance Jio Infocomm Ltd. The upstart operator, backed by billionaire  Mukesh Ambani, has put pressure on carriers to consolidate after storming into the market last year by offering free calls and data.

Vodafone’s Colao told investors Monday that shared control of the merged company had always been a requirement of the discussions with Idea Cellular. Owning a lower stake in a “much better and much stronger asset” is more appealing than having 100 percent of a smaller, less profitable business, he said on a conference call with reporters.

While Idea Cellular didn’t use financial advisers, it hired Mumbai-based Axis Bank Ltd. for the much less lucrative role of providing a fairness opinion. Vaish Associates Advocates and Bharucha & Partners provided legal advice to the Indian company. The transaction with Vodafone comes with a break fee of 33 billion rupees ($505 million), according to an emailed press release.

“The trend of engaging in-house investment bankers is slowly picking up globally,” Alok Shende, the founder of Ascentius Consulting in Mumbai, said by phone. “Where there is consensus and friendlier terms, in-house bankers will come to help to conclude a deal.”

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Bloomberg