British telecom major Vodafone Group PLC (VOD,VOD.L) on Monday reached an agreement to merge most of its India subsidiary with India-based Idea Cellular Ltd. The implied enterprise value is $23.2 billion, comprising $12.4 billion for Vodafone India and $10.8 billion for Idea excluding its stake in Indus Towers. The combination is expected to create India's largest telecoms operator with almost 400 million customers, 35 percent customer market share and 41 percent revenue market share.
The shares of Idea, the country's third-largest mobile operator, declined around 10 percent after gaining up to 15 percent in the initial trading.
Aditya Birla Group Chairman, Kumar Mangalam Birla, said, "This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the Government's Digital India vision a reality."
The deal excludes Vodafone's 42 percent stake in Indus Towers. Initially, Vodafone Group and Idea Cellular will equally own the venture. Vodafone will own 45.1 percent of the combined company after transferring a 4.9 percent stake to Aditya Birla Group for about $579 million in cash. The Aditya Birla Group will then own 26 percent of the combined company and Idea's other shareholders will own the remaining 28.9 percent.
Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post-closing, reducing Vodafone Group net debt by approximately $8.2 billion.
To the combined company, Idea will contribute all of its assets including its standalone towers with 15.4k tenancies and its 11.15 percent stake in Indus Towers. Vodafone will contribute Vodafone India including its standalone towers with 15.8k tenancies but excluding its 42 percent stake in Indus Towers.
The transaction is expected to be accretive to Vodafone's cash flow from the first full year post-completion. The merger is expected to close during calendar year 2018, subject to customary approvals.
The companies expect substantial cost and capex synergies with an estimated net present value of approximately $10 billion after integration costs and spectrum liberalisation payments. The companies expects to save about $2 billion annually by the fourth year after the merger.
In due course, the brand strategy of the combined company will be developed and the company's name will be changed.
The combination comes amidst the knockout competition in India, the world's second-largest mobile phone market, especially with the arrival of no-cost service, Reliance Jio Infocomm Ltd. After months of free service, Reliance created by India's richest man, Mukesh Ambani, just started charging nominally.
Idea shares settled at 97.20 Indian rupees, down 10.08 percent.
by RTT Staff Writer
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