India’s telecom shares plunged on Monday after Idea Cellular was valued at Rs 72.50 a piece, or less than three-fourth the market price, as the world’s leading mobile service provider Vodafone announced a merger deal with the KM Birla company.
While Idea shares fell as much as 20% in intraday trade, Bharti Airtel fell as much as 1.6%, Reliance Communication 2.15% and Tata Telecommunication 2.4%.
Reliance Industries, whose telecom arm Jio cross 100 million subscriber base recently, was also down 1.1% in intraday trade.
Some of the telecom stocks recovered in late trade and closed marginally higher. Bharti ended up 0.76% while Rcom was gained 0.26%.
But Idea ended down 10.1% while Reliance was down 1.56% and Tata Tele 4.1%.
The telecom stocks were to some extent responsible for dragging down the Sensex and Nifty by as much as 0.5%.
Initially, Idea shares shot up 14.6% at opening trade to touch day’s high of Rs 123.50 as investors perceived the merger with Vodafone lending financial muscle to Kumarmangalam Birla’s telecom company and take on other heavy-weights such as Bharti and Reliance Jio.
However, Idea shares plunged 20% from day’s high to touch Rs 92.35 after fine-print of the deal revealed that company was valued at just 72.50.
On Monday, Britain’s Vodafone Group announced plans to merge its Indian subsidiary with Idea Cellular within two years to create the country’s largest telecom firm that can take on other major players in a fiercely competitive telecom market.
Vodafone will own 45.1% of the merged entity, after it transfers about 4.9% to promoters of Idea or their affiliates for Rs 38.74 billion in cash, Idea said.
Idea said the companies expected cost and capex synergies of about $10 billion in net present value after integration costs and spectrum payments.
The combined Vodafone-Idea group would India’s largest telecom operation with almost 400 million customers or 35% market share.
Bharti has a little over 300 million subscribers while Reliance Jio and Reliance Communication have a little over 100 million each.
Telecom stocks were under pressure after Reliance Jio started offering 4G mobile services virtually, triggering a fierce price war and crimping profit margins of debt-laden telecom companies.
Jio’s entry has also forced consolidation in the telecom market as smaller firms increasingly found it unviable to compete with bigger entities.
In February, Bharti announced takeover of Telenor’s India unit, which has a subscriber base of 38 million and a paltry market share of about 4%.
Last year, RCom announced taking over of Russian firm Sistema’s India unit MTS and Malaysian Maxis’ unit Aircel to gain market share. RCom owner Anil Ambani has also announced a “virtual merger” with elder brother Mukesh Ambani’s Reliance Jio as the two companies now share spectrum, network and towers.