The Strategist

Vodafone to merge with Indian Idea Cellular

03/20/2017 - 14:58

British mobile operator Vodafone has agreed to merge its operations in India with competing company Idea Cellular. The deal will create the largest telecommunications company in the country, as emergence of a new competitor caused a price war.

Vodafone Medien via flickr
Vodafone Medien via flickr
The combined company will have nearly 400 million customers, surpassing the market leader Bharti Airtel. The new company will account for about 40% of revenue of the second largest mobile services market in the world after China.

Capitalization of the combined company will amount to $ 23.2 billion.

The deal is expected to be closed in 2018. Then, Vodafone will become an owner of 45.1% of the combined company. To do this, the British operator will sell for 4.9% of its shares to the conglomerate Aditya Birla owned by billionaire and Head of Idea Kumar Mangalam Birla for $ 592 million.

In total, Aditya Birla will receive 26% of the merged company’s shares, and almost 29% of shares will be traded on the stock exchange. In the future, Aditya Birla will be able to increase its share by 5%, buying an appropriate package from Vodafone India.

The merger will require approval of regulators. Under the current rules, the company cannot control more than 50% of revenue and customers in each of the 22 telecommunications districts of the country. According to CLSA analysts, the new company will have to sell assets in five districts in order to avoid violation of new requirements.

Last year, three leading mobile operators in India - Bharti Airtel, Vodafone and Idea Cellular – previously experienced difficulties after appearance a new operator, Jio Infocomm, owned by Mukesh Ambani, a billionaire from Reliance Industries.

Jio Infocomm shook the market, offering customers free voice and data communications. The company attracted many customers, forcing competitors to reconsider their positions.