Institutional investors want Vodafone to up its stake in Idea deal

Institutional investors in Vodafone Plc are seeking a higher stake for the UK-based telco’s unlisted Indian entity in the proposed merger with Aditya Birla Group firm Idea Cellular, it is learnt. Sources indicated this issue may have a bearing on the merger process.

At the time of the announcement of the proposed deal, Idea Cellular said in a statement that “the fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity.” Vodafone had only confirmed the discussions with the Aditya Birla Group about an all-share merger, without giving any future shareholding detail.

Sources said that institutional investors are believed to have written to the parent company, asking for a higher holding for Vodafone. A higher stake in what would emerge as the largest telecom operator in India, in terms of revenues, would mean a bigger share of the telecom sector pie in India for the investors.

Both Vodafone India and Idea Cellular declined to comment on the matter. According to industry insiders, if the companies are unable to bring consensus on the issue of holding, the merger may even fall through. On January 30, UK-based telecom giant Vodafone said it was in talks for an allstock merger of its India unit with rival Idea Cellular. The proposed merger would not include its 42 per cent stake in Indus Towers, a three-party venture with Bharti Airtel and Idea Cellular. It would make the merged entity India’s largest telecom company in terms of revenue, at 43 per cent.

It will also become a leading global telecom firm in terms of number of subscribers, at 387 million.

According to a Mumbai-based technical analyst, the talks of Idea Vodafone merger have even revived some of the dormant stocks in the sector. The momentum in telecom stocks was back after the announcement.

But the deal could get delayed, analysts said. One reason for a possible delay is the precondition of shedding excess spectrum by the two companies in case of a merger. Both Idea and Vodafone will have to first discard incremental spectrum in the 900 megahertz (MHz) and 2,500 MHz bands across Gujarat, Maharashtra, Haryana, Kerala and Uttar Pradesh (West) circles so that the combined entity does not breach the spectrum holding cap fixed by the Telecom Regulatory Authority of India (Trai).

According to Trai guidelines on merger and acquisitions, no company can hold more than its prescribed share of spectrum in any circle. To comply with those guidelines, the combined entity (Vodafone-Idea) may have to sell additional spectrum including some airwaves in the 2,500 MHz band in the Gujarat and Maharashtra circles and some in the 900 MHz bands of Gujarat, Haryana, Kerala and Uttar Pradesh (West) circles.

Meanwhile, consolidation in the telecom sector is partly being attributed to the entry of Reliance Jio.

On February 23, Bharti Airtel announced the acquisition of Telenor India in a no-cash deal, which will see Norway’s telco leaving the country, as business had become unsustainable.

Bharti would take over the outstanding amount for the spectrum that Telenor has acquired and also its contracts for tower lease and infrastructure.