Details of Vodafone, Idea merger this week

Merger was necessitated by launch of Reliance Jio Infocomm

After eight months of hectic parleys, Britain's Vodafone Group's Indian subsidiary and Aditya Birla Group's Idea Cellular have taken a step closer to a mega merger that would create a new market leader better able to contest a brutal price war with 42 per cent market share.
 
Both the companies would hold equal stake in the merged entity and an announcement would be made as early as this week, a source said.
 
Vodafone, the world's second-largest cellphone networks operator, has agreed to Birla's demand that Kumar Mangalam Birla would become the chairman of the merged entity. The equity value of both the companies has been estimated at Rs 40,000 crore each while the combined entity would have debt of approximately Rs 89,000 crore.

 

The merger was necessitated by the launch of Mukesh Ambani-owned Reliance Jio Infocomm that has shaken the Indian wireless telephony market with its low rates.
 
Jio has made an immediate impact with the launch of free calls and cut-price data, forcing the three biggest operators — Bharti Airtel, Vodafone and Idea — to slash prices and accept lower profits.
 
Since its launch in October last year, Jio had garnered 100 million customers, whereas Vodafone and Idea would have around 375 million customers.
 
The merger would be a win-win deal for both companies. While Vodafone will deconsolidate its massive India debt from its British parent, Idea Cellular would be able to invest in its operations without taking much help from its parent group. Vodafone will also get a listing in India as Idea is already listed in India.

 
Both companies will also hold a majority stake in Indus Towers, a three-way venture with Bharti Airtel. Idea also owns its own telecom towers that would be sold off in order to raise funds for the company.
 
One of the big roadblock to the transaction is the ongoing income tax demand by the Centre against Vodafone PLC. Vodafone has contested the demand and the matter is currently under arbitration. Besides, the merged entity would have to sell spectrum in five circles where the combined market share breaches the Indian laws.