SoftBank may Open A/c in Voda-Idea Com­bine In talks with Voda­fone to pick up stake in In­dian unit, may end up with 15-20% in merged en­tity

The Economic Times - - Front Page -

Deepali Gupta, Anan­dita Singh Manko­tia & Ari­jit Bar­man

Mum­bai | New Delhi: Masayoshi Son’s SoftBank, which is about to close its mega $100-bil­lion Vi­sion Fund, could emerge as a new in­vestor in the pro­posed Idea-Voda­fone com­bine, ac­cord­ing to four peo­ple aware of the devel­op­ment.

SoftBank is learnt to be in talks with Voda­fone Plc to buy a mi­nor­ity stake in its In­dian unit which is likely to be merged with Idea Cel­lu­lar. While dis­cus­sions are still on and there is no guar­an­tee about the out­come, peo­ple fa­mil­iar with the sit­u­a­tion say it is pos­si­ble that the Ja­pa­nese in­vestor may end up with 15-20% in the merged en­tity.

When con­tacted, SoftBank, Voda­fone Plc and Idea Cel­lu­lar de­clined com­ment.

Sale of shares to a new in­vestor will en­able Voda­fone to re­duce its share­hold­ing in the merged com­pany to be­low 50%, thereby al­low­ing it to de­con­sol­i­date its deb­trid­den In­dian op­er­a­tions from its books. It could also pave the way for Voda­fone’s grad­ual exit from In­dia over a pe­riod of time. The Voda­fone’s In­dia rev­enue in Q3 of FY17 to

10,210 crore

Idea Cel­lu­lar posted of

479 crore

in Q3 of FY17 Voda­fone holds 100% in In­dia arm;


in merged co

Aditya Birla Group holds 42% in Idea;


Share sale to new in­vestor could pave way for Voda’s grad­ual exit over a pe­riod of time from In­dia

UK com­pany’s $28-bil­lion In­dia bet has yielded no prof­its so far.

A new in­vestor will also help bridge the gap be­tween the share­hold­ing of Voda­fone and Idea as well as its pro­moter —the Aditya Birla Group — in the merged com­pany. While the Bir­las have pub­licly said they want equal rights with Voda­fone, most an­a­lysts have pegged the val­u­a­tion of Voda­fone In­dia at $3 bil­lion more than Idea’s. “Even though some other large fi­nan­cial in­sti­tu­tions and funds have been tapped, dis­cus­sions with SoftBank are pro­gress­ing fast. It could come in as a sig­nif­i­cant in­vestor with a mi­nor­ity stake of be­tween 15% and 20% in the com­pany,” said one of the per­sons aware of the devel­op­ment.

A new in­vestor can also in­fuse cap­i­tal in the busi­ness to com­bat deep­pock­eted ri­vals like Re­liance Jio and help to delever­age. The com­bined en­tity will end up hav­ing around ₹ 100,000 crore debt.

Peo­ple close to SoftBank had told ET last month that its Vi­sion Fund, which is be­ing helmed by In­dia-born Ra­jeev Mishra, could scout for buy­out deals in the coun­try, in­clud­ing in the tele­com sec­tor. A stake in the Idea-Voda­fone com­bine will give the fund a strong foothold in what will be In­dia’s largest telco, both by sub­scribers and by rev­enue mar­ket share.

Last month, Voda­fone and the Aditya Birla Group con­firmed that they are in talks to ex­plore an all-share merger of Voda­fone In­dia (ex­clud­ing Voda­fone’s 42% stake in In­dus Tow­ers) and Idea. Any merger would be ef­fected through the is­sue of new shares in Idea to Voda­fone and would re­sult in the UK com­pany de­con­sol­i­dat­ing Voda­fone In­dia. There have been some me­dia re­ports that the two com­pa­nies may an­nounce progress on merger talks this month, but this could not be con­firmed.


An of­fi­cial with knowl­edge of the on­go­ing dis­cus­sions said a key chal­lenge was to bring about a ‘merger of equals’ when the share­hold­ing and op­er­a­tions are of dif­fer­ent size and scale.

Voda­fone In­dia’s op­er­a­tions are larger than Idea Cel­lu­lar both in terms of rev­enues and sub­scribers. More­over, while Voda­fone Plc owns 100% of its In­dian arm, the Aditya Birla Group owns just 42% of Idea Cel­lu­lar.

Most an­a­lysts have given a higher val­u­a­tion num­ber to Voda­fone In­dia as com­pared to Idea Cel­lu­lar. But some top tele­com in­dus­try ex­ec­u­tives say that as Voda­fone’s stake in In­dus Tow­ers will not be part of this trans­ac­tion and af­ter ad­just­ing for Voda­fone’s debt, it is pos­si­ble that the two com­pa­nies may ar­rive at a 1:1 merger ra­tio.

Even in such a sce­nario, the Aditya Birla Group’s share­hold­ing in the merged en­tity will be around 21%, much less than Voda­fone Plc’s 50%.

One op­tion would be for the Aditya Birla Group to sub­stan­tially in­crease its share­hold­ing in the merged com­pany to match that of Voda­fone by buy­ing over ex­ist­ing share­hold­ers as well as by sub­scrib­ing to fresh shares of Idea Cel­lu­lar. An­a­lysts have es­ti­mated that this would in­volve the Bir­las pump­ing in some­where be­tween $2.39 bil­lion and $3.72 bil­lion in or­der to raise their hold­ing to 37-39% in the merged com­pany.

An in­duc­tion of a sig­nif­i­cant mi­nor­ity in­vestor, who buys a por­tion of Voda­fone’s hold­ing will make it eas­ier for the Bir­las who may need to in­fuse only an ad­di­tional ₹ 4,000-5,000 crore. Voda­fone’s share­hold­ing will come down, mak­ing it pos­si­ble for the Bir­las to in­vest less.

Peo­ple fa­mil­iar with the sit­u­a­tion say Aditya Birla Group chair­man Ku­mar Man­galam Birla would want a min­i­mum 26% in such a sce­nario. But this could not be in­de­pen­dently ver­i­fied.


Se­nior tele­com in­dus­try ex­ec­u­tives say Voda­fone Plc is keen to di­vest as much as it can. The com­pany started with a $11-bil­lion in­vest­ment in 200708, when it bought out Hutchi­son to en­ter the coun­try. On that in­vest­ment, it was slapped with a $2-bil­lion tax fine, which it con­tin­ues to dis­pute.

To ex­pand op­er­a­tions, it has fur­ther in­vested ₹ 119,100 crore in In­dia but profit seems to be elu­sive. In­sti­tu­tional share­hold­ers of the par­ent com­pany, who are fo­cused on cash prof­its, have of­ten ques­tioned in­vest­ments in In­dia that have given neg­li­gi­ble re­turns.

Re­liance Jio’s en­try and the en­su­ing price wars have com­pounded mat­ters and made the com­pany even less en­thu­si­as­tic about In­dia.

“Voda­fone wants to di­lute as much as pos­si­ble… the com­pany is tired of fight­ing the In­dian sys­tem and be­lieves an In­dian pro­moter will have greater sway to com­pel fair reg­u­la­tion,” said an in­dus­try of­fi­cial, who did not wish to be named. Last Novem­ber, Voda­fone Group slashed the value of its In­dia unit by

5 bil­lion (`36,448.53 crore) due to in­creased com­pe­ti­tion sparked by the en­try of Jio, lead­ing to a price war that hurt rev­enue and profit and clouded growth prospects. Prior to that, the com­pany had al­ready taken a $3bil­lion write­off in 2010.


There is al­ready an ex­ist­ing re­la­tion­ship be­tween Voda­fone and SoftBank. A lit­tle over a decade ago, SoftBank bought Voda­fone’s op­er­a­tions in Ja­pan to chal­lenge lo­cal cham­pi­ons NTT Do­como and KDDI Corp. It has also learnt that the Ja­pa­nese com­pany has in­vited Voda­fone to be an in­vestor in the Vi­sion Fund.

SoftBank is also ac­tive in the tele­com space in the US where it has in­vested in Sprint and is in talks to merge this with T-Mo­bile.

SoftBank’s Son has been a big backer of In­ter­net and com­mu­ni­ca­tions ser­vices. The com­pany has in­vested in In­dian con­sumer in­ter­net star­tups such as Snapdeal and Ola, and an in­vest­ment in what will be In­dia’s largest telco will deepen its pres­ence in the coun­try.

New in­vestor to help in cash in­fu­sion, will al­low Voda and Idea to delever­age


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