Vodafone's Idea call to create Indian giant

Britain's Vodafone Group and Idea Cellular have agreed to merge their Indian operations in a US$23 billion deal, creating the country's biggest telecoms business after the entry of a new rival sparked a brutal price war.
The combined Vodafone-Idea entity would have 400 million customers, overtaking India's market leader Bharti Airtel to account for about 40 per cent of revenue of the world's second-biggest mobile phone services market by users after China.
The combined Vodafone-Idea entity would have 400 million customers, overtaking India's market leader Bharti Airtel to account for about 40 per cent of revenue of the world's second-biggest mobile phone services market by users after China.PHOTO: REUTERS

It is merging Indian ops with local firm in $32b deal as market hots up

MUMBAI • Britain's Vodafone Group and Idea Cellular agreed yesterday to merge their Indian operations in a US$23 billion (S$32 billion) deal, creating the country's biggest telecoms business after the entry of a new rival sparked a brutal price war.

The combined entity would have almost 400 million customers, overtaking market leader Bharti Airtel to account for about 40 per cent of revenue of the world's second-biggest mobile phone services market by users after China.

The deal underscores how India's mobile industry is being transformed by the launch last year of Reliance Jio Infocomm's 4G mobile broadband network.

Built at a cost of more than US$20 billion by India's richest man Mukesh Ambani, Jio has offered free services for months. That has forced the country's three biggest operators - Bharti, Vodafone and Idea - to slash prices and accept lower profits, and sparked a wave of consolidation in the sector.

"We are very complementary," Vodafone chief executive Vittorio Colao told a news conference in Mumbai after the deal was announced. "Idea is strong where Vodafone is weaker, Vodafone is strong where Idea is weaker."

REINFORCING EACH OTHER

We are very complementary. Idea is strong where Vodafone is weaker, Vodafone is strong where Idea is weaker.

VODAFONE CHIEF EXECUTIVE VITTORIO COLAO, on the deal to combine the two entities.

The two companies, which announced in January that they were in talks, will have to shed spectrum in some areas to meet India's rules, although Mr Colao said it would be "small". The deal is expected to close next year.

Shares in Idea rose as much as 14.3 per cent right after the news but then fell 9 per cent as traders said the implied deal price for Idea was well below the stock's close last Friday. Vodafone shares were flat in London trading as of 0942 GMT.

Idea said the rough deal price worked out to 72.5 rupees per share but stressed that was only for illustrative purposes and was not the actual price. Idea's shares closed at 108.10 rupees last Friday.

Vodafone, the world's second- largest cellphone operator, will own 45.1 per cent of the merged entity, after it transfers about 4.9 per cent to promoters of Idea or their affiliates for 38.74 billion rupees (S$828 million) in cash, Idea said.

Aditya Birla Group, the majority owner of Idea, will hold 26 per cent while other shareholders will own the remaining 28.9 per cent. Aditya Birla and Vodafone eventually aim to own an equal share of the joint venture, with a combined enterprise value of US$23.2 billion.

Idea would have the sole right to appoint the chairman, while Vodafone would appoint the chief financial officer. The appointment of a chief executive officer and a chief operating officer would require the approval of both companies, which would get the right to nominate three board members each.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 21, 2017, with the headline 'Vodafone's Idea call to create Indian giant'. Print Edition | Subscribe