With the Jio threat over the industry looming large, Idea Board today okayed the merger of Vodafone India and its arm Vodafone Mobile Services with itself to create the largest mobile company in both revenues and subscribers numbers. The deal does not include Vodafone India's investments in their Tripartitie tower business venture with Airtel -- Indus Tower and Vodafone's global assets and IT platforms.
The market did not take the merger positively. In early hours, the shares of Idea slipped 6.75% on BSE.
With this, Idea-Vodafone will overtake current market leader Airtel in both revenue and subscriber marketshare. The merged entity will have a Enterprise Value Rs 82,800 crore. The combined company will have scale and size to take on Reliance Jio with Idea mostly active in hinternlands and Vodafone a key metro player.
Vodafone will have 45.1 stake after transferring the stake of 4.9% to the promoters of Idea for Rs 3,874 crore in cash an Idea will hold 26% stake while rest will be held by public, said the BSE filings of Idea Cellular.
The combined company would become the leading communications provider in India with almost 400 million customers, 35% customer market share and 41% revenue market shares, Vodafone said.
The implied enterprise value is Rs 82 800 crore (US$12.4 billion) for Vodafone India and Rs 72, 200 crore (US$10.8 billion) for Idea excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA2 , Bureaucracry Today has learnt.
The merger will, post-closing, reduce Vodafone Group net debt by approximately Rs 552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA. The transaction is expected to be accretive to Vodafone’s cash flow from the first full year post-completion
Substantial cost and capex synergies with an estimated net present value of approximately Rs 67, 000 crore (US$10.0 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of Rs 14,000 crore US$2.1 billion) on an annual basis by the fourth full year post completion, Vodafone said,
Vodafone Group Plc and Idea Cellular today announced that they have reached an agreement to combine their operations in India (excluding Vodafone’s 42% stake in Indus Towers) to create India’s largest telecom operator. The combined company would become the leading communications provider in India with almost 400 million customers, 35% customer market share and 41% revenue market share, Vodafone said.
The combined company will have sufficient spectrum to compete effectively with the other major operators in the market. It would hold 1,850 MHz, including circa 1,645 MHz of liberalised spectrum acquired through auctions 7 . It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 3G carriers and 129 4G carriers across the country, said Vodafone Plc, the British Parent of Vodafone India. .
The Aditya Birla Group will own 26.0% in the new venture and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time. If Vodafone and the Aditya Birla Group’s shareholdings 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.
Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement. Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post-closing, reducing Vodafone Group net debt by approximately Rs 552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA4, said Vodafone.
The transaction is expected to be accretive to Vodafone’s cash flow from the first full year post-completion. The transaction is expected to close during calendar year 2018, subject to customary approvals.
Aditya Birla Group Chairman, Kumar Mangalam Birla, said: “This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure. For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”
Vodafone Group Plc Chief Executive, Vittorio Colao said: “The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India. The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian. We look forward to working with the Aditya Birla Group to create value for all stakeholders.”
The merged entity will have revenues of in excess of Rs 80,000 crore... The merged unit will 26% of allocated spectrum and will have too rework on meeting spectrum cap norms. Both have huge debts which will be transferred to the new entity.
Idea will appoint the chairman and the CEO and COO will be appointed by both the shareholders. Vodafone will have the right to pick CFO.
Pro forma net debt as at 31 December 2016 would have been Rs 1,079 billion (US$16.1 billion). On this basis, leverage of the combined company would have been 4.4x LTM EBITDA. Pro forma for the sale of Vodafone and Idea’s standalone towers as well as Idea’s 11.15% stake in Indus and the estimated run-rate opex synergies, leverage would have been 3.0x LTM EBITDA.