Britain’s Vodafone Group will merge its Indian subsidiary with local rival Idea Cellular within two years, creating a new market leader that will be better equipped to negotiate a brutal new price war.
Here are 10 things you need to know about this merger:
In the beginning, Vodafone will be a dominant partner in the merged entity with 45.1% stake after it will transfer a stake of 4.9% to the Aditya Birla group for Rs 3,874 crore in cash to complete the merger. Aditya Birla group will then own 26% stake in the company but it will have the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalise the shareholding over time.
If Vodafone and the Aditya Birla Group’s shareholding in the combined company are not equal after four years, 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.
PTI has reported that Kumar Mangalam Birla will be the new chairman of the merged entity, while Vodafone will appoint the chief financial officer.
The merged company would become the largest telecom operator in India with almost 400 million customers, 35% customer market share and 41% revenue market share. The brand strategy of the combined company would be developed in due course. The name of the new merged company will also be decided later.
Vodafone and Idea anticipate that the merger completion will take place during the 2018 calendar year.
Prior to completion of the transaction, Vodafone and Idea intend to sell their standalone tower assets. Idea has 11.15% and Vodafone has 42% stake in Indus Towers.
Kumar Mangalam Birla said the merger will be funded through promoter companies (like say Pilani Investments) and not through listed entities such as Grasim and Hindalco.
The Birlas have ruled out major downsizing at Idea after the merger.
Vodafone said that the ongoing tax dispute with government will not affect the merger. This is the capital gains tax worth over Rs 20,000 crore that the Indian government has demanded from Vodafone for its acquisition of assets from Hutchison Whampoa Ltd. in 2007.
Both Vodafone and Idea brands to operate separately for the next few years till the merger is completed, said Vittorio Colao of the British telco.