Vodafone dials Idea for merger

The new entity could become the largest telecom player in India; Idea shares soar by 25.90%

ALL-SHARE DEAL

VODAFONE GROUP of the UK on Monday said it’s in talks to merge its Indian subsidiary with Idea Cellular of the Aditya Birla group in an all-share deal that could create the largest telecom company inindiaandalsoleadtomoreconsolidation in the segment.

The merger, if happens, will enable the new entity to take on rivals including Airtel and Reliance Jio, intensifying the tough competition in the segment. “Vodafone confirms that it is in discussions with the Aditya Birla group about an allshare merger of Vodafone India (excluding Vodafone’s 42 per cent stake in Indus Towers) and Idea,” Vodafone said in a statement. “There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” it said. Idea said in a statement that the early talks between the two sides were based on equal rights between its owner, Aditya Birla group, and Vodafone, which would get shares in Idea.

Idea Cellular shares flared up on the bourses soon after the announcement. The stock vaulted by 25.90 per cent to Rs 97.95 on the BSE on Monday. If Vodafone and Idea decide to merge, the combined entity would have 43 per cent revenue market share as against the 33 per cent of Bharti Airtel currently and 13 per cent for Reliance Jio by 2018-19, a CLSA report had said. Bharti Airtel is the largest telecom operator in India with 263.35 million mobile subscribers, Vodafone has 202.79 million users and Idea Cellular 187.68 million. With 32.84 per cent, Bharti Airtel has the maximum market share, but the combined entity of Vodafone India and Idea will command 43 per cent share.

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India,” Vodafone said. The Aditya Birla group owns 42.2 per cent of Idea while Malaysian carrier Axiata Group Bhd has a 19.8 per cent stake. Vodafone India Ltd is a wholly-owned unit of Vodafone Group Plc. Vodafone took a $5 billion writedown on Vodafone India last year due to the new bout of intense competition. It also deferred its plan to bring out an IPO due to the price war and remains locked in a battle with the government over a $2 billion tax claim related to its acquisition of Vodafone India from Hutchison in 2007.

“Consolidation seen during 2015-2016 was expected to continue in 2017, so if this happens it would not be surprising. Both Vodafone India and Idea have to figure out their long term business strategy and merger could wellbethepath,givencurrentindustry competitiveness and dynamics,” said Amresh Nandan, research director, Gartner on merger talks between Vodafone and Idea Cellular.

“If they decide to do so, one can hope for a long term strategy behind it and not just gaining market share and subscriber share. It would be very important for the merging entities to realise the transformation required in their operations. At this point in time in communication industry, transforming themselves while they consolidate will be a necessary step, even though not an easy one,” Nandan said. Idea on Monday also said it plans to raise Rs 500 crore through non convertible debentures on private placement basis.

Meanwhile, Vodafone India on Monday moved Delhi High Court alleging that telecom regulator Trai had failed to prohibit “blatant violation” of its tariff orders, directions and regulations by Reliance Jio Infocomm Ltd (RJIO) by permitting it to continue with its free offers. Justice Sanjeev Sachdeva, before whom the matter came up, listed the matter for hearing on February one as Rjio had not been made a party in the matter, saying any order the court passes would affect the telecom company. Thereafter, on the oral plea of Vodafone, Rjio was made a party.

Vodafone has claimed that the Trai has also failed to implement Department of Telecommunications’ (DOT) circulars which lay down that all tariffs must be compliant of inter-connection usage charges (IUC), non-discriminatory and non-predatory.