Vodafone, Idea merger to create biggest telecom operator in the country.
Facing intense rivalry from Reliance Jio, the Aditya Birla Group chairman Mangalam Birla and the CEO of Vodafone group Vittorio Colao announced the merger of their Indian wireless telephony businesses, to create the largest telecom operator in the country.
In a news conference in Mumbai, Vittorio Colao and Mangalam Birla said the merger would create a new champion of digital India and will provide new services soon.
In the first step of the merger, the Birla group -owned Idea Cellular and Vodafone India would merge their operations at a swap ratio of 1:1. Birla Group holding firms would buy a 4.9 percent stake from Vodafone at Rs 110 per share, investing close to Rs 3,900 crore.
This will raise Idea’s stake to 26 percent and bring down Vodafone Plc’s stake to 45.1 per cent. The Birla group would have the right to acquire another 9.5 percent stake from Vodafone in the next four years so that both partners eventually hold an equal stake in the business.
“India was earlier the jewel in our crown. Now with this merger, we have got a bigger jewel,” Colao said, adding: “This is our Make in India initiative.”
Currently, Idea and Vodafone together have a customer base of 400 million.
The merger would complete at the end of 2018 by that their joint venture share is likely to be 41 percent, which is the biggest market share till now and will hold second place with 268 million users in India.
According to the contract between Vodafone and Idea, the implied enterprise value for Vodafone is Rs 82,800 crore and the value of Idea Cellular’s is Rs 72,200 crore, exclusive of its 11.2 per cent stake in Indus Towers.
The ratio of the merger was 1:1 based on Idea’s undisturbed share price of Rs 72.5, based on the 30-trading day average price as on 27th January, when both the telecom operators first confirmed they were planning a merger. Since then, Idea’s stock had enhanced on speculation that it would fetch a far greater valuation.
In the next four years, the Birla Group have the right to acquire an additional 9.5 percent stake from Vodafone, at Rs 130 per share, implying that the merged entity’s equity value would be Rs 94,600 crore.