Aditya Birla Group raising Vodafone Idea stake through open market

Market price of Rs 5.5 a share gives opportunity to Birla Group to mop up shares from the stock markets.

The Aditya Birla Group is raising its stake in Vodafone Idea by buying shares from the open market instead of buying them from its partner Vodafone Plc at a far higher price.

According to an agreement inked with Vodafone in 2017, the Birla Group was to acquire an additional 9.5 per cent stake from Vodafone at Rs 130 a share in the merged entity Vodafone Idea. But the current market price of Rs 5.5 a share has given a window of opportunity to the Birla Group to mop up shares from the stock markets. This share purchase plan has the approval of Vodafone Plc.

Idea Cellular and Vodafone India had merged and the promoter entities had planned to have equal shareholding after the amalgamation.

In the past two months, the Kumar Mangalam Birla-led entities have acquired additional 0.4 per cent stake from the open market operations, exchange filings show.

The falling share price of Vodafone Idea, therefore, has come as a bonanza for the Birla Group to raise its stake in the company. The stock has shed over 80 per cent value in a year, and has more than halved since its rights issue in April.

A Birla spokesperson said: “Promoter companies have acquired additional stake from the market in Vodafone Idea as part of normal consolidation in promoter shareholdings based on opportunities. We have raised our holdings because the prices are very attractive and in our assessment, the market is not reflecting the true value of the underlying business.”

Under the shareholders’ agreement, the Aditya Birla Group had the right to purchase a stake of up to 9.5 per cent in the combined company from Vodafone at an agreed price equivalent to an equity value of Rs 94,600 crore for 100 per cent of the combined entity. As on Friday, the stock price of Vodafone Idea crashed to Rs 5.3 a share, with the total market valuation at just Rs 15,400 crore.

According to the merger agreement, if both promoters fail to equalise over the first three years, the Aditya Birla Group will inform Vodafone how many further shares (up to a maximum of 9.5 per cent less any shares purchased in the first three years) it wishes to acquire. The Aditya Birla Group then had a period of 12 months to complete such purchase at the prevailing market price.

Interestingly, both Vodafone and Birla Group had also agreed to a standstill period for the first three years after closing the merger in August 2018, during which neither party was to buy any shares from or sell any to a third party without the approval of the other partner.

At the end of the third year after closing, the standstill provisions expire in relation to all shares other than those that the Aditya Birla Group has committed to acquire.  

From the beginning of the fifth year after completion of the merger, if Vodafone and the Aditya Birla Group’s shareholdings in Idea are not yet equal, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

Until equalisation was to be achieved, the rights of additional shares held by Vodafone were restricted and votes to be exercised jointly under the terms of the shareholders’ agreement signed between the two partners in March 2017.

Both promoters held 71.57 per cent stake in the company at the end of the first quarter. While Aditya Birla owned nearly 28.5 per cent stake in the company, Vodafone Plc’s shareholding stood at over 43 per cent in June 2019.