Vodafone confirms merger talks with Idea Cellular
30 January 2017
Vodafone India, the local arm of British telecom group Vodafone Plc, is combining operations with rival Idea Cellular in a bid to beat competition from Reliance Jio Infocomm, the newly-launched telecom arm of Mukesh Ambani-led Reliance Industries Ltd.
Vodafone Plc today confirmed media speculation that it is in talks with Aditya Birla group telecom firm Idea Cellular for a possible merger amid growing competition from Reliance Jio.
In a statement on Monday, Vodafone said it is in discussions for an all-share merger with Idea with the exception of Vodafone's 42-per cent stake in Indus Towers. The merger would include issuance of new shares in Idea to Vodafone and "deconsolidating" Vodafone India, signalling a new entity could emerge from the combination.
''Vodafone Group Plc notes the recent media speculation regarding a potential combination of Vodafone India and Idea Cellular.
''Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone's 42 per cent stake in Indus Towers) and Idea. Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India,'' Vodafone stated in a website release.
''There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,'' it added.
The timing and terms of the deal, however, are still uncertain, it said in the statement.
A merger of the second-largest telco, Vodafone India, and Idea, the third-largest player, would create India's largest telecom player by revenue and subscribers, toppling Bharti Airtel from the top spot.
Reliance Jio's entry has shaken up India's $26-billion telecom market so far ruled by the trio – Bharti Airtel, Vodafone and Idea Cellular – which together controlled more than half of the market.
The telecom sector, which includes several smaller players, is finding it hard to compete against the aggressive entry of Reliance Jio late last year, and the plunging tariffs.
The combined cost of upgrading technology to 4G and 5G and spectrum acquisition has driven up costs for telecom companies that have not faced any major price competition.
On the other hand, Vodafone India and Idea Cellular as also current market leader Bharti Airtel have been forced to cut prices because of aggressive pricing by Jio Infocomm.
Vodafone Plc, the UK-based parent of Vodafone India, saw its shares rise about 3 per cent, making it the biggest riser on the FTSE 100 index.
Leading mobile networks in the country are embroiled, in what analysts describe as, "a vicious price war", started by the arrival of a low-cost rival offering free voice and data to customers.
Vodafone India and Idea Cellular, together with current market leader Bharti Airtel, had been forced to cut prices by Reliance Jio, a new operator owned by billionaire, Mukesh Ambani.
The intense competition saw Vodafone write down the value of its Indian business by €5 billion in November.
Vodafone had looked to spin off Vodafone India, had said then that it would wait for the market to stabilise.
"There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction," Vodafone said in a statement on Monday.
Idea said in a statement that the early talks between the two sides were based on equal rights between its owner, Aditya Birla Group, and Vodafone, which would get shares in Idea.
According to commentators, like other joint ventures that Vodafone had, the firm would deconsolidate the business, leaving it as a shareholder benefitting from dividend payments.
Vodafone had also dropped plans for a market flotation for the business due to the price war and remained had a legal tangle going with the government over a $2 billion tax claim related to its acquisition of Vodafone India from Hutchison in 2007.