Idea, Vodafone India announce merger

Aditya Birla telecom company Idea Cellular and the Indian unit of British telecom company Vodafone today announced a merger, creating India's largest telecom operator.

Idea-Vodafone merger will create India's largest telecom operator with Rs80,000 crore revenue and the widest network in the country. The combined entity will have 400 million customers or a third of all mobile phone users in the country.

Vodafone will own 45 per cent in the combined entity, which will have the widest network in the country and pan-India 3G / 4G footprint, the companies said in a statement.

Vodafone will own 45.1 per cent of the merged entity, after it transfers about 4.9 per cent to promoters of Idea and/or their affiliates for Rs3,874 crore in cash, Idea said.

The Aditya Birla group will own 26 per cent of the entity and will have the right to acquire more shares from Vodafone under a mechanism with a view to equalising shareholdings over time.

The deal excludes Vodafone's 42 per cent stake in telecom tower company Indus Towers.

Promoters of Idea will have the sole right to appoint chairman of the merged entity.

The entry of Reliance Jio has spurred a consolidation in the Indian telecom sector. Analysts say the combined entity of Vodafone India and Idea Cellular will be in a better position to compete with Reliance Jio and Bharti Airtel.

"The 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," said Aditya Birla Group chairman Kumar Mangalam Birla.

Vodafone and Idea anticipate the merger to complete next year.

The move has been spurred by Reliance Jio's entry in the Indian telecom sector, which has intensified competition in India, the world's second-biggest mobile market after China.

Idea Cellular posted its first-ever quarterly loss in the October-December quarter while Bharti Airtel reported its lowest profit in four years during the quarter.

Bharti Airtel had earlier this year announced an agreement to buy Norwegian company Telenor's operations in six Indian states.

Reliance Communications has already entered into an agreement to merge its wireless business with rival Aircel.

The merger between Vodafone and Idea Cellular is seen positive for the telecom sector and the combined entity. "The combined entity's operating margins will improve by around 3 percentage points due to cost synergies in networking and selling, general and administrative expenses," the India Ratings, a rating agency, had said in a report.