Vodafone, Idea clinch $23 bn deal to be numero uno player

Vodafone announced this morning that it will combine its subsidiary Vodafone India with Idea in a deal valued at $23 billion, creating the largest telco in the country by revenue and subscriber numbers.

The combined Vodafone-Idea group would India's largest telecom operation with nearly 400 million customers, or 35 percent market share. In India, rising costs and fierce competition have weighed on the finances of industry.

Telecom sector slipped, with Idea Cellular's stocks plunging by nearly ten per cent on Monday - a day of major merger announcements in the telecom space. However, vodafone will have the sole right to appoint the chief financial officer.

Vodafone will own 45.1% of the combined company after transferring a 4.9% stake to the Aditya Birla Group for $579 million in cash, concurrent with completion of the merger.

The all-share merger for both partners excludes Vodafone's 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone deconsolidating Vodafone India.

Idea said its board board of directors had approved the amalgamation scheme of Vodafone India Ltd and its wholly-owned unit, Vodafone Mobile Services Ltd with Idea. Vodafone's parent company will also benefit because it will own a minority stake in its Indian operations, so the $8.2 billion in debt it holds will be taken off the its books.

Jio has made an impact with free voice calls and cut-price data services, forcing India's three biggest operators - Bharti Airtel (BRTI.NS), Vodafone and Idea - to slash prices and accept lower profits.

Vittorio Colao, CEO of Vodafone, the world's second-biggest mobile operator by subscribers, said the two companies will continue to operate under their current brands indefinitely, but will eventually work under the same name. "Idea is strong where Vodafone is weaker and Vodafone is strong where Idea is weaker", Colao pointed out.

Colao said on Friday the pending case, with India demanding more than $2 billion in taxes, will not affect the deal, which needs regulatory approval.

It also left competitors scrambling to match the deep pockets of Jio, which is backed by India's hugely wealthy energy-to-chemicals conglomerate Reliance Industries, and caused a rush towards consolidation in the multi-billion-dollar sector.

Allaying apprehensions on the fate of employees in both companies, Birla assured that they do not foresee "any significant downsizing" post-merger, indicating little chances of job losses in the new entity. Last month, Bharti Airtel announced plans to buy the Indian business of the Norway-based Telenor.

Related News: