Idea and Vodafone announce $23 billion cashless merger

The Dollar Business Bureau

Vodafone and Idea officially confirmed their much-anticipated merger on Monday. The combined entity, in terms of revenue and number of subscribers, will form the biggest player in India, which is the world's second largest telecom market. However, Airtel is still projected to lead in profitability and average revenue per user (ARPU).

The $23 billion deal between India's second and third largest telecom firms will see the formation of a gargantuan entity with a subscriber base of close to 400 million and revenues projected at over Rs.80,000 crore, capturing 41% market share in revenue.

Vodafone will hold a 45.1% share in the joint venture after selling 4.9% stake to Idea for Rs.3,900 crore. Aditya Birla holds a 26% stake initially, but at the end of three years, it has to secure the option of buying another 9.5% stake at the rate of Rs.130 per share.

In the fourth year, the Birla group may reach 35.5%, by buying shares at market price. However, if holdings do not balance out in the first four years, Vodafone will work towards equalising stakes in the next five years by selling its shares.

The top brass of combined operations will comprise of a combination of executives from both firms. While Kumar Birla is appointed the Chairman, the CFO will be named from Vodafone. The CEO and COO will be jointly nominated by both Vodafone and Idea.

The said deal will also partially off-load debt amassed by the London-headquartered holding company of Vodafone. The parent company is said to free itself of Rs.55,200 crore worth of debt, owing to the deconsolidation of its Indian operations.

Although Vodafone is much bigger in size and valuation in comparison to Idea, the British telecom giant is assumed to have agreed to a merger primarily because of its inability to cope with cut-throat competition in the sector. This seemed to be the only exit from piling debt on its India operations.

Moreover, the company may not have seen value in boosting investment to beat Jio, which started operations with a massive investment of over $20 billion.

It is expected that the two firms will gain from each other’s strengths, although both have substantially lagged in catching up with 4G, giving Airtel and Jio an edge from the beginning.