Idea Cellular Board Approves Merger With Vodafone India

But today, Idea Cellular has announced that its board of directors has approved the merger of Vodafone India and its fully-owned subsidiary Vodafone Mobile Services Limited.

The market did not take the merger positively. Note that valuation at 6.4x trailing EBITDA is below expectations and even the implied value of Idea is below expectations.

The entry of new player Reliance Jio previous year – bankrolled by India’s richest man who offered six months of free 4G internet – set off a price war that left Vodafone, Idea and industry leader Bharti Airtel scrambling. The combined Vodafone-Idea group would be India’s largest telecom operation with nearly 400 million customers, or 35% market share with revenue of Rs 80,000 crore. Expectations vs Reality for Vodafone-Idea merger?

Vodafone India has 17 circles with 4G capability, covering 90 per cent of the company’s total revenues and 94 per cent of mobile data revenues.

Idea said it would issue equity shares to Vodafone India after the scheme of amalgamation with VMSL, which would be equal to 47 per cent of the post-issue paid-up capital of the company on a fully-diluted basis. The promoters of Idea will have a 26 per cent stake in the company and the rest will be held by public. The silver lining in all this is that the Birla group has settled on a valuation of Rs130 per share for the possible future transactions in the first three years after the completion of the transaction. The CEO and COO of the entity will require the compliance of both companies. “We look forward to working with the Aditya Birla Group to create value for all stakeholders”, said Vodafone Chief Executive Vittorio Colao in a statement.

The merger is also expected to create an entity with a revenue forecast of around Rs 77,500-80,000 crore. Especially, on the subscriber share and spectrum caps front.

With this merger, the new telecom entity has become the largest telecom network in the country. Anil Ambani, Chairman of the Reliance Group, is believed to have initiated talks on the matter with the newly-appointed Tata Sons’ Chairman N Chandrasekaran. The British telecom company will have the right to appoint CFO of company.

The combined entity had a net debt of Rs 1.07 trillion as of December 2016. The brand strategy of the combined company would be developed in due course.

Idea’s stock was up 3.7% in morning trade on Monday.