The combined Vodafone-Idea group will be India's largest telecom operation with 400 million customers
New Delhi: In one of the biggest mergers in the telecom space, Vodafone India and Aditya Birla Group-promoted Idea Cellular on Monday announced their much-expected coming together.
Kumar Mangalam Birla, Chairman of the Aditya Birla Group, will be the Chairman of the new merged entity.
Idea said the rough deal price worked out to Rs 72.50 per share but stressed that was only for illustrative purposes and was not the actual price. Idea's shares closed at Rs 108.10 on Friday.
The merger underscores how India's mobile industry is being transformed by the launch last year of Reliance Jio Infocomm's 4G mobile broadband network.
Built at a cost of more than $20 billion by India's richest man, Mukesh Ambani, Jio has offered free services for months. That has forced India's three biggest operators - Bharti, Vodafone and Idea - to slash prices and accept lower profits, and sparked a wave of consolidation in the sector.
"We are very complementary," Vodafone Chief Executive Vittorio Colao told a news conference in Mumbai after the deal was announced.
"Idea is strong where Vodafone is weaker, Vodafone is strong where Idea is weaker."
The two companies, which announced in January that they were in talks, will have to shed spectrum in some areas to meet India's rules, although Colao said it would be "small". The deal is expected to close in 2018.
"Vodafone Group and Idea Cellular announced they have reached an agreement to combine their operations in India (excluding Vodafone's 42 per cent stake in Indus Towers) to create India's largest telecom operator," a joint statement by the companies said.
"The combined company would become the leading communications provider in India with almost 400 million customers, 35 per cent customer market share and 41 per cent revenue market share," it added.
Idea Cellular in a regulatory filing said its Board of Directors "has approved the scheme of amalgamation of Vodafone India Ltd and its wholly owned subsidiary Vodafone Mobile Service Ltd with the company (Idea)".
The merger will create an entity with over Rs 80000 crore revenue.
"Vodafone will own 45.1 per cent of the combined company after transferring a stake of 4.9 per cent to the promoters of Idea and/or their affiliates for Rs 3874 crore in cash concurrent with the completion of the amalgamation," the statement said.
"The promoters of Idea will hold 26 per cent of the company and the balance will be held by the public."
The merged entity will have an around 400-million subscriber base, replacing the current dominant player Bharti Airtel (around 269 million customers).
"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," said Kumar Mangalam Birla.
"Idea and Vodafone will together create a very valuable company given our complementary strength," he added.
Both Idea Cellular and Vodafone India are present in all 22 telecom circles in India and have 4G connectivity in 17 circles.
The agreement contemplates the completion of the proposed amalgamation within 24 months.
"The name of the combined listed company will be changed in due course," the statement added.
Rajan S Mathews, Director General, Cellular Operators' Association of India, said: "This trend of mergers and consolidation, will remain a positive development, benefiting customers, operators and the government in the long run on global lines.
"The need of the hour, however, is a predictable, stable, long term, regulatory and policy environment, to ensure the financial health of telecom service providers and a conducive environment for continued investments for a fully connected and digitally empowered India."
Earlier, there were 13 telecom operators in India as opposed to four or five now.
"Consolidation is a much anticipated and very welcome development in this beleaguered telecom sector. It will help bring in operational efficiencies and improved quality of service to customers," said Arpita Pal Agrawal, Partner and Leader-Telecom, PwC India.
Idea Cellular's stock prices, though, crashed post the announcement on Monday. It closed around 10% down at Rs 97.60 per share in the BSE.