London, United Kingdom / Mumbai, 20th March, 2017 (GPN) : 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. The merger of Idea and Vodafone India is founded on a shared commitment to realise the Indian Government’s ‘Digital India’ vision and financial inclusion goals, delivering significant benefits to 1.3 billion Indian consumers and creating substantial value for all stakeholders.
The board of directors of Idea Cellular at its meeting held today approved the “scheme of amalgamation of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with the company”, Idea said in a regulatory filing.
The transaction is subject to necessary approvals from concerned authorities, including SEBI, Department of Telecom, RBI etc. “Upon the amalgamation becoming effective, the entire business of VIL and VMSL, excluding VILs investment in Indus Towers Limited, its international network assets and information technology platforms, will vest in the company,” the filing said.
According to the filing, the turnover of Vodafone India is Rs 5,025 crore and of VMSL is 40,378 crore. Idea Cellulars turnover is Rs 36,000 crore. The net worth of VIL is 12,855 crore, VMSLs 3,737 crore and of Idea Cellular is Rs 24,296 crore.
As this deal would now change the entire telecom landscape of the country; here is all the information you need to know about the merger;
The merger of Vodafone, the country’s second-largest cellphone network operator, with the Aditya Birla Group firm — India’s third-largest cellular operator would create a company with over 395 million users and form one of the largest telecom companies in the world.
Kumar Mangalam Birla will be the new chairman of the merged entity, while Vodafone will appoint the CFO.
“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 strength,” said Kumar Mangalam Birla, Chairman, Aditya Birla Group.
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.”
With 32.84 per cent, Bharti Airtel has the maximum market share, but the combined entity of Vodafone India and Idea will command 43 per cent, say analysts.
According to the deal, Vodafone would acquire 45 per cent of the combined entity while promoters of Idea would sell 26 per cent stake. After the announcement, the shares of Idea Cellular soared over 14 per cent on Monday.
It has also been mentioned in the filing that if after four years, the combined shareholdings of Vodafone and the Aditya Birla Group would not be equal then Vodafone would sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.
Idea Cellular is already listed on BSE and NSE, while Vodafone India is expected to list on bourses in March 2017 and raise about $2-$3 billion.
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. Also, it has the the largest voice and data traffic usage within the Vodafone Group.
Idea is trying to attract premium 4G customers, having launched services in seven circles so far. Idea’s wireless broadband network is spread across 17 circles with a population of over 880 million, with 50 per cent of this population already covered.
Top five service providers have over 80 per cent of the market share of the total broadband subscribers. The merged entity would become the leader in the category, overtaking Bharti and Reliance Jio.
Since its entry in India in 2007, Vodafone has become number two operator in the country, but its journey has been tumultuous as it is locked in a legal battle with the government over a USD 2 billion retrospective tax claim over its acquisition of Vodafone India from Hutchison in 2007.
It had written down value of business by 5 billion euro, late last year. The British firm has pumped in more than USD 7 billion into the India unit.
Telecom operator Vodafone made a payment of over Rs 10,100 crore to the Department of Telecom towards the purchase of the airwaves last year. The company paid over Rs 10,100 crore through deferred payment and also submitted a financial bank guarantee of Rs 1,900 crore. The firm made the highest amount of bids, leaving behind its rivals Bharti Airtel and Reliance Jio and Idea Cellular. The country’s second-largest telecom operator had made bids worth Rs 20,280 crore to acquire spectrum in all its key telecom circles across 1800, 2100 and 2500 MHz bands.
Prior to the merger, it was speculated that the combined entity will generate a revenue share of around 40 per cent and a subscriber base of over 380 million, according to India Ratings and Research.
Equalisation mechanism
The Aditya Birla Group has the right to acquire more shares from Vodafone, under an agreed mechanism, with a view to equalising
the Parties’ shareholdings over time. Until equalisation is achieved, the additional shares held by Vodafone will be restricted and
votes will be exercised jointly under the terms of the shareholders’ agreement.
The Parties have agreed a standstill period for the first three years after closing, during which neither Party can buy any shares
from or sell any shares to a third party.
During the standstill period, the Aditya Birla Group has the right to purchase a stake of up to 9.5% in the combined company
from Vodafone at an agreed price that is equivalent to an equity value of INR946 billion (US$14.1 billion) for 100% of the combined
company (post-closing). This is equivalent to INR130 per share, which represents a premium of 80% to Idea’s undisturbed share
price of INR72.5 (based on the 30 trading day VWAP as at 27 January 201717).
If the Parties’ shareholdings have not been equalised over the first three years, the Aditya Birla Group needs to inform Vodafone
how many further shares (up to a maximum of 9.5% less any shares purchased in the first three years), it wishes to acquire. The
Aditya Birla Group then has a period of 12 months to complete such purchase at the prevailing market price. At the end of the
third year after closing, the standstill provisions expire in relation to all shares other than those that the Aditya Birla Group has committed to acquire, if any.
From the beginning of the fifth year after completion, if Vodafone and the Aditya Birla Group’s shareholdings in Idea are not yet equal, 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.
Joint governance and management
Vodafone and the Aditya Birla Group have entered into a shareholders’ agreement, and it is intended that the combined company’s articles will be amended at closing to reflect certain rights for each Party.
Following completion, the Board of the combined entity will be comprised of 12 directors including three directors appointed by each of Vodafone and the Aditya Birla Group, and six independent directors.
The Aditya Birla Group will have the sole right to appoint the Chairman (as one of its three directors), who will be Mr Kumar Mangalam Birla. Vodafone will have the sole right to appoint the Chief Financial Officer. Both Vodafone and the Aditya Birla
Group will jointly agree on the appointment of the Chief Executive Officer and the Chief Operating Officer.
Those roles – together with those of the broader management team – will be confirmed prior to closing, with appointments made
on the principle of ‘the best person for the job’.
The Parties’ rights under the shareholders’ agreement – and the amended articles of the combined company – will be subject to a number of conditions including (but not limited to) a Party maintaining its shareholding in the combined company above 26%
until 31 March 2020 and above 21% thereafter.
Capital structure and dividend policy Pro forma net debt as at 31 December 2016 would have been INR1,079 billion (US$16.1 billion). On this basis, leverage of the combined company would have been 4.4x LTM EBITDA19
. 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 EBITDA20.
The Parties expect the combined company to be self-funding going forwards but are committed to maintaining appropriate leverage prior to closing and thereafter, aided by the expected sale of Idea and Vodafone India’s standalone towers as well as
Idea’s 11.15% stake in Indus.
The Parties have agreed a capital structure and dividend policy which is expected to be implemented post completion. This will ensure that the combined company is appropriately capitalised and that excess cash flow21 is distributed to shareholders.
Conditions to completion and indicative timetable
The transaction is subject to approvals from the relevant regulatory authorities. Vodafone and Idea have undertaken preparatory work on the required scheme and other necessary filings.
The transaction is also subject to other customary closing conditions, including the absence of any material adverse change.
Shareholder approval will be required from Idea shareholders under a scheme of arrangement. The transaction is not subject to approval from Vodafone shareholders.
The transaction has a break-fee of INR33 billion (US$500 million) that would become payable under certain circumstances.
Vodafone and Idea anticipate that completion will take place during the 2018 calendar year.
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About Vodafone
Vodafone is one of the world’s largest telecommunications groups and provides a range of services including voice, messaging,
data and fixed communications. Vodafone has mobile operations in 26 countries, partners with mobile networks in 49 more, and
fixed broadband operations in 17 markets. As of 31 December 2016, Vodafone had 470 million mobile customers and 14.3 million
fixed broadband customers. For more information, please visit: www.vodafone.com.
About Aditya Birla Group
The Aditya Birla Group is a US$41 billion conglomerate with operations in more than 36 countries. The Aditya Birla Group has
been operating in India and globally for over 5 decades. Its businesses range among others, mobile telecommunications, metals
and mining, cement, carbon black, textiles, garments, chemicals, fertilizers, life insurance and financial services industries.
About Idea Cellular
Idea Cellular is the third largest wireless operator in India, Idea is listed on the National Stock Exchange (NSE), and the Bombay
Stock Exchange (BSE) in India. Idea is part of the Aditya Birla Group, which is one of the largest business groups in India.
For the last twelve months to December 31, 2016, Idea Cellular reported revenue of INR369billion (US$5.5 billion) and EBITDA of
INR114 billion (US$1.7 billion).
Advisors to Vodafone and Vodafone India
Lead financial advisors: Morgan Stanley and Robey Warshaw.
Financial advisors: Bank of America Merrill Lynch, Kotak Investment Bank, Rothschild and UBS.
Legal advisors: S&R Associates and Slaughter and May.
Advisors to Idea
Legal advisors: Vaish Associates Advocates and Bharucha & Partners.
Fairness opinion provider: Axis Capital Limited.
Joint Independent Valuers
Walker Chandiok & Co LLP and Bansi S. Mehta & Co.
