Vodafone India and Idea to merge
Britain’s Vodafone Group confirmed that it was in talks to merge its Indian subsidiary with local rival Idea Cellular in an all-share deal that would create a new market leader to deal with the brutal price war created by Mukesh Ambani backed Reliance Jio Infocom. Vodafone is the world’s second-largest cellphone networks operator.
Jio has made an immediate impact with the launch of free calls and cut-price data, forcing the three biggest operators – Bharti Airtel, Vodafone and Idea – to slash prices and accept lower profits.”There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” Vodafone said in a statement on Monday.
Idea Cellular said it constantly evaluates various opportunities to enhance stakeholders’ value. “As part of the exercise, the company has been in preliminary discussions with Vodafone, In a statement Idea said that the early talks between the two sides were based on equal rights between its owner, Aditya Birla Group, and Vodafone, which would get shares in Idea. The merger plan however excludes Vodafone’s 42 per cent stake in Indus Towers.
The move, however, will face regulatory hurdles associated with spectrum caps and significant market power in terms of combined customer base and revenue market share. CLSA said a potential Vodafone-Idea combine would breach spectrum caps in five of 22 circles.However, industry experts say this can easily be overcome if Vodafone and Idea surrender excess spectrum in these circles.
“The merged entity would get a year to align with revenue and subscriber market share caps but it would have to part sell/surrender spectrum to be below the cap. The new entity would have to pay Rs 5,700 crore to liberalise its administered spectrum which would be offset if the merged entity can sell excess spectrum worth Rs 5,400 crore,” CLSA said in a report. The report added that a merger with Idea Cellular “would be the best fit for Vodafone India, particularly as the two operators’ operational strengths are complementary.The merger would help Vodafone India improve its positioning in the mass market while Idea would gain from Vodafone’s strength in metro circles.
“Not only would the combined entity become the industry leader but also a strong competitor in the data market with 3G spectrum across India and the highest 4G spectrum in the 1800 MHz band, enabling sufficient capacity spectrum,” CLSA said.