NEW DELHI: Aditya Birla-led Idea Cellular said that its board has approved the merger application with Vodafone India and Vodafone Mobile Services to create India’s largest telecom operator, according to a notification to the BSE.
The transaction is expected to close during calendar year 2018, subject to customary approvals.
“Vodafone Group today announced that they have reached an agreement to combine their operations in India (excluding Vodafone’s 42% stake in Indus Towers) to create India’s largest telecom operator. The combined company would become the leading communications provider in India with almost 400 million customers, 35% customer market share and 41% revenue market share,” said Vodafone in a statement.
Under the agreement, Vodafone will own 45.1% of the combined company after transferring a 4.9% stake to the Aditya Birla Group for Rs 39 billion (US$579 million) in cash, concurrent with completion of the merger. The Aditya Birla Group will then own 26.0% of the combined company and Idea’s other shareholders will own the remaining 28.9%.
“The Aditya Birla Group has the right to acquire up to a 9.5% additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time. If the Aditya Birla Group does not equalise its stake, Vodafone will reduce its holding in order to equalise its ownership with that of the Aditya Birla Group. Until equalisation is achieved, the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement,” the statement said.
“The brand strategy of the combined company will be developed in due course and will leverage customers’ affinity for both existing brands, built up over the past decade. The name of the combined listed company will be changed in due course,” it said.
“The merger of Idea and Vodafone India is founded on a shared commitment to realise the Indian Government’s ‘Digital India’ vision and financial inclusion goals, delivering significant benefits to 1.3 billion Indian consumers and creating substantial value for all stakeholders.,”it said.
“By combining their respective businesses, Idea and Vodafone will establish a company with the scale and efficiency required to offer innovative and attractively priced mobile services, enhancing consumer choice in a highly competitive market with at least five major telecoms providers. The combination of the two companies’ networks and spectrum holdings, together with continued investment, will accelerate the pan-India expansion of wireless broadband services on 4G/4G+/5G technologies to build capacity, supporting the expansion of digital content and IoT services and delivering a world-class broadband experience to customers,” it said.
The combined company will have sufficient spectrum to compete effectively with the other major operators in the market. It would hold 1,850 MHz, including circa 1,645 MHz of liberalised spectrum acquired through auctions7. It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 3G carriers and 129 4G carriers across the country.
Vodafone India’s strong presence in metro circles and Idea’s leadership in semi-urban and rural telecom markets will allow for nationwide leadership within Indian M&A guidelines. In circles where both Idea and Vodafone India currently have a limited presence, the combined entity will become the leading challenger with the scale to compete more effectively and enhance consumer choice.
The combined company will be able to draw on support from its two largest shareholders, Vodafone and the Aditya Birla Group, (each a “Party” and collectively the “Parties”) to drive growth, investment and to create value for all stakeholders. The Parties’ capabilities combine experience of running leading businesses across multiple industries and geographies, world-class expertise in telecoms with global scale, enterprise services, mobile money services and procurement and a deep understanding of – and strong relationships within – the Indian market.
“Throughout its history, the Aditya Birla Group has been synonymous with the task of nation building and driving inclusive growth in the country. 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. For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths,” said Aditya Birla Group Chairman, Kumar Mangalam Birla.
“The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India. The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian. We look forward to working with the Aditya Birla Group to create value for all stakeholders,” said Vodafone Group Plc Chief Executive, Vittorio Colao.
“Prior to completion of the transaction, Vodafone and Idea intend to sell their standalone tower assets and Idea’s 11.15% stake in Indus Towers to reduce leverage in the combined company. Vodafone will also explore strategic options for its 42% stake in Indus Towers; potential options include either a partial or a full disposal,” a statement said.
Joint governance and management
Following completion, the Board of the combined entity will be comprised of 12 directors including three directors appointed by each of Vodafone and the Aditya Birla Group, and six independent directors.
The Aditya Birla Group will have the sole right to appoint the Chairman (as one of its three directors), who will be Mr Kumar Mangalam Birla. Vodafone will have the sole right to appoint the Chief Financial Officer. Both Vodafone and the Aditya Birla Group will jointly agree on the appointment of the Chief Executive Officer and the Chief Operating Officer.