British telecom major Vodafone Group PLC (VOD,VOD.L) on Monday reached an agreement to merge most of its India subsidiary with India-based Idea Cellular Ltd. The combined entity will have 35 per cent customer base and 41 per cent of revenue market share in India.
The shares of Idea, the country's third-largest mobile operator, declined around 10 percent after gaining up to 15 percent in the initial trading.
"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 strength", said Kumar Mangalam Birla, Aditya Birla Group Chairman.
Idea said it would issue equity shares to Vodafone India after the scheme of amalgamation with VMSL, which would be equal to 47 per cent of the post-issue paid-up capital of the company on a fully-diluted basis.
Stating that the Idea Cellular seems to be the biggest victor of the Vodafone-Idea merger, Sanjay Kapoor, Ex Bharti Airtel CEO on Monday told ET Now that the merger has given Idea an opportunity to be a strong competitor in the market.
Vodafone will own a 45.1 per cent stake in the the merged entity following the transfer of about 4.9 per cent of shares to promoters of Idea and and its affiliates for 38.74 billion rupees ($592.15 million) in cash, Idea said in a statement. Meanwhile Birla's companies will take a 26 percent holding, with the remainder being held by the public.
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. Vodafone added it would also explore strategic options for its Indus Towers stake.
"The merger pegs implied enterprise valuation of Rs 82,800 crore (USD 12.4 billion) for Vodafone India and Rs 72,200 crore (USD 10.8 billion) for Idea", according to an exchange filing by Idea.
"The integration cost accounted in the net synergy is estimated to be almost Rs 13,400 crore from the completion until the first full year of operations", Idea managing director Himanshu Kapania told analysts. The companies expects to save about $2 billion annually by the fourth year after the merger.
India's mobile industry was thrown into turmoil with the launch previous year of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman, Mukesh Ambani, as part of his Reliance Industries (RELI.NS) conglomerate.