India’s Idea Cellular Ltd and Vodafone India Ltd on Monday said that their respective boards have approved their merger, excluding Vodafone’s 42% stake in Indus Towers Ltd, to create India’s largest telecom company with a total revenue of over Rs80,000 crore.
In the beginning, Vodafone will be a dominant partner in the merged entity with 45.1% stake after it will transfer a stake of 4.9% to the Aditya Birla group for Rs3,874 crore in cash to complete the merger. Aditya Birla group will then own 26% stake in the company but it will have the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalize the shareholding over time.
“The promoters of Idea have the right to acquire up to a 9.5% additional stake in from Vodafone… if Vodafone and the promoters of Idea do not have equal shareholding by the expiry of the fourth year from the completion of amalgamation, Vodafone is obliged to reduce its holding in order to equalise its ownership with that of the promoters of Idea over the following five years,” Idea Cellular said in a statement.
Reacting to the news, shares of Idea went up 3.85% to Rs111.75 a piece at 9.39am while the benchmark index Sensex fell 0.39% to 29,536.74 points.
The promoters of Idea Cellular have the sole right to appoint the chairman. The appointments of chief executive and chief operating officers will require approval of the boards of both the companies while Vodafone will have exclusive rights to appoint chief financial officer.
Aditya Birla group chairman, Kumar Mangalam Birla, said. “This landmark combination will enable the Aditya Birla group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the government’s Digital India vision a reality. For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”
Vodafone Group Plc chief executive officer, Vittorio Colao, said, “The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies—such as mobile money services—that have the potential to transform daily life for every Indian. We look forward to working with the Aditya Birla Group to create value for all stakeholders.”
The combined company would become the leading communications provider in India with almost 400 million customers, 35% customer market share and 41% revenue market share. The brand strategy of the combined company will be developed in due course and will leverage customers’ affinity for both existing brands, built up over the past decade. The name of the combined listed company will be changed in due course, Idea said in a statement.
Prior to completion of the transaction, Vodafone and Idea intend to sell their standalone tower assets and Idea’s 11.15% stake in Indus Towers to reduce leverage in the combined company. Vodafone will also explore strategic options for its 42% stake in Indus Towers; potential options include either a partial or a full disposal.
Vodafone and Idea anticipate that completion will take place during the 2018 calendar year.