Voda, Idea Ap­point Firms to Con­duct Due Dili­gence EY to work for Voda and Deloitte to work for Idea; process could take at least a month

The Economic Times - - Companies: Pursuit Of Profit -

Sachin Dave & Dev­ina Sen­gupta

Mum­bai: Voda­fone Group and the Aditya Birla Group have ap­pointed con­sul­tancy firms EY and Deloitte, re­spec­tively, to con­duct due dili­gence for the pro­posed merger of In­dia’s sec­ond and third ranked tel­cos, which could cre­ate the coun­try’s largest mo­bile phone com­pany.

Ac­cord­ing to peo­ple close to the de­vel­op­ment, Prashant Singhal, global telecom­mu­ni­ca­tions leader at EY, has cre­ated a team of 25 to carry out due dili­gence on Idea Cel­lu­lar for Voda­fone. Ra­jeev Me­mani, chair­man at EY In­dia, is be­lieved to be di­rectly in­volved with the process.

Deloitte has also put to­gether a 25-mem­ber team — spear­headed by Uday Bhansali, pres­i­dent-fi­nan­cial ad­vi­sory, and Vipul Jhaveri, man­ag­ing part­ner, tax and reg­u­la­tory at Deloitte in In­dia — to con­duct fi­nan­cial due dili­gence on Voda­fone for Idea Cel­lu­lar, they said. Anil Tal­reja, an­other part­ner at Deloitte, is also part of the team.

“The due dili­gence could last for at least a month,” said a se­nior ex­ec­u­tive from one of the two con­sult­ing firms men­tioned above. UK’s Voda­fone Group de­clined to com­ment on the story, while the Aditya Birla Group, EY and Deloitte did not re­spond to emailed queries as of press time on Tues­day. Voda­fone and the Aditya Birla group that owns Idea Cel­lu­lar said on Jan­uary 30 that they were in talks to form a joint ven­ture with equal rights in an all-share deal, which would cre­ate a much stronger telco to take on the com­pet­i­tive threat posed by Re­liance Jio In­fo­comm. The talks in­volve Voda­fone buy­ing fresh shares in Idea and de­con­sol­i­dat­ing its In­dia unit.

A Voda­fone-Idea com­bi­na­tion would have about 390 mil­lion users, ex­ceed­ing cur­rent mar­ket leader Bharti Air­tel’s 266 mil­lion. The com­bined en­tity will also be the largest by revenue mar­ket share.

Ac­cord­ing to peo­ple in the know, Voda­fone has sought clar­ity on tax­a­tion is­sues around the merger.

“A ma­jor fo­cus of the due dili­gence would be on whether the merger could cre­ate any tax li­a­bil­i­ties. Ret­ro­spec­tive tax­a­tion is a very sen­si­tive topic for the com­pany (Voda­fone),” said a per­son who re­quested not to be named. “The com­pany wants to be ab­so­lutely sure about the tax li­a­bil­ity that could arise af­ter the merger,” he added. Voda­fone and the In­dian gov­ern­ment have been em­broiled in a .₹ 20,000-crore tax dis­pute re­lated to the lat­ter’s 2007 ac­qui­si­tion of Hutchi­son Es­sar over the past few years. The row has been em­blem­atic of in­vestor con­cerns re­lated to tax de­mands stem­ming from ret­ro­spec­tive changes in the law. The mat­ter is cur­rently in in­ter­na­tional ar­bi­tra­tion. An­other per­son in the know said Voda­fone has also sought a view on whether the re­cently an­nounced reg­u­la­tions around do­mes­tic trans­fer pric­ing or cap­i­tal gains tax on fair value could be of con­cern.

The due dili­gence is also be­ing car­ried out on the num­ber of mo­bile tow­ers and also around the fi­nan­cial num­bers pro­vided by the other com­pany.

The con­sul­tants are also look­ing at job func­tions that are be­ing du­pli­cated. The two firms, put to­gether, have more than 30,000 em­ploy­ees. An In­dia Rat­ings and Re­search re­port said the key chal­lenge for the merger — which could cre­ate an en­tity with revenue of around .₹ 77,500 to .₹ 80,000 crore and EBITDA mar­gins of around 28% — will be op­er­a­tional and man­age­ment con­trol of the merged en­tity along with the out­stand­ing tax mat­ter of Voda­fone In­dia. It, how­ever, said the merger will com­ple­ment the cir­cle pres­ence of both the en­ti­ties — Idea has strong pres­ence in ru­ral ar­eas while Voda­fone is strong in ur­ban ar­eas.

An­a­lysts at In­dia Rat­ings be­lieve that Voda­fone-Idea merger will im­prove com­pet­i­tive­ness of the re­sul­tant en­tity in around 60% of cir­cles (based on sub­scriber mar­ket share) where the merged en­tity will be­come a lead­ing op­er­a­tor as it can of­fer ser­vices at bet­ter price points due to the op­er­a­tional syn­er­gies in those cir­cles.

They said the merger will also re­sult in capex syn­er­gies since it will elim­i­nate the du­pli­ca­tion of spec­trum ca­pac­ity and in­fra­struc­ture-re­lated re­quire­ments.

“In­dia Rat­ings notes that the spec­trum of Voda­fone In­dia (in seven cir­cles) and Idea (in two cir­cles) which are ex­pir­ing in FY22 are not in com­mon cir­cles, and there could be po­ten­tial spec­trum capex syn­er­gies (the cu­mu­la­tive worth of spec­trum in these nine cir­cles is over .₹ 12,000 crore, based on the lat­est auc­tion prices in those cir­cles),” it said.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.