New Delhi: British telecom major Vodafone Group Plc on Monday confirmed that it is in active discussion with the Aditya Birla Group for an all share merger of Vodafone India and Idea Cellular. The deal, though, excludes Vodafone’s 42 per cent stake in Indus Towers.
“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India. There is no certainty that any transaction will be agreed nor as to the terms or timing of any transaction,” the company said.
Vodafone, the second largest telecom operator in India with 202.79 million subscribers just after Bharti Airtel (263.35 million) while Idea is the third largest network operator in the county with 187.68 million users. This will be the biggest consolidation in the $26 billion Indian telecom industry, which will make the combined entity the largest telecom operator in the country in terms of total subscriber base and revenue market share.
The discussion to merge the two entities comes in the wake of the launch of low cost telecom operation by Reliance Jio, the telecommunication arm of Mukesh Ambani led Reliance Industries Ltd (RIL), which is forcing other operators to cut tariff rates at the cost of margins to retain their customer base. The shares of Idea Cellular zoomed 25.90 per cent on the BSE to end the day at Rs 97.95.
“The merger would help Vodafone India improve its positioning in the mass-market, while Idea Cellular would gain from Vodafone’s strength in metro circles. Not only would the combined entity become the industry leader but also a strong competitor in the data market with 3G spectrum across India and the highest 4G spectrum in the 1800MHz band, enabling sufficient capacity spectrum,” global brokerage firm, CLSA said in a report two weeks back.
Analyst at Morningstar, an independent investment research firm said that the proposed merger is a strong response to the disruptive launch of commercial operations by Reliance Jio.
“The firm’s (Vodafone) subscriber growth has long exceeded our projections, but it has struggled to translate that growth into earnings and cash flow. Over the past two years, the market was beginning to recover from previous price wars, only to now see RJio start them again. We view this merger as a strong response, and we see Vodafone’s shares as undervalued,” it said.
