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Bloomberg
Vodafone Group Plc agreed to merge its Indian unit with Idea Cellular Ltd., joining forces with a local partner to confront a raging price war in the world’s second-largest mobile-phone market.
The European carrier will own 45.1 percent after selling a 4.9 percent stake to billionaire Kumar Mangalam Birla’s holding companies, according to a stock exchange filing on Monday. Birla’s companies will initially hold 26 percent in the publicly traded company, with the right to buy more from Vodafone.
The transaction moves an unprofitable business off Vodafone’s balance sheet while providing cost savings that will help the merged company, valued at $23.2 billion, better compete with billionaire Mukesh Ambani. Ambani’s Reliance Jio Infocomm Ltd. stormed into the market last year by offering free calls and data, pressuring other carriers to consolidate. Last month, Bharti Airtel Ltd. agreed to acquire the Indian business of Telenor ASA, after the Norwegian carrier concluded that its prospects there didn’t warrant
further investment.
The enlarged wireless operator will have 395 million subscribers, exceeding those of Bharti, the current market leader. Vodafone India was assigned an enterprise value of $12.4 billion, while Idea Cellular was valued at $10.8 billion.
Birla’s holding companies will pay $592 million, or 108 rupees a share, for the additional 4.9% stake. They will have the right to pay Vodafone 130 rupees a share to raise their stake in the first three years, and market price in the fourth year, Saurabh Agarwal, head of strategy at the group, said at a press conference in Mumbai.
More Scale
The merger will help better utilize spectrum and the combined entity will have a complementary footprint across India, Vodafone Chief Executive Officer Vittorio Colao said at the press conference. Some excess spectrum will be sold or returned to the government to meet regulatory requirements, he said.
The venture will save an estimated $2.1 billion a year on operating costs and capital investments after four years, the companies estimate.
The deal in India follows Vodafone’s creation of a venture in the Netherlands last year. While Vodafone is willing to relinquishes partial control of its most troubled assets, it is increasingly becoming a holding company, according to Stephane Beyazian, an analyst with Raymond James in London.
Vodafone and Idea will each control three seats on the new company’s board, which will have six independent directors. Birla will have the right to appoint a chairman. Vodafone would gain a listing in India, which it has been considering since at least 2011.
Birla units including Aditya Birla Nuvo Ltd. own 42 percent of Idea, according to the company’s website. Malaysian carrier Axiata Group Bhd has a 20 percent stake.
Vodafone India Ltd. is a wholly owned unit of Vodafone. The transaction is expected to be completed in 2018, according to the statement.
While Vodafone’s Colao on Monday highlighted the benefits of de-consolidating $8.2 billion of debt, the bigger gain for shareholders is that the merger will make the industry and in turn Vodafone more profitable India, said Arun Agarwal, partner at London-based hedge fund Altavista Investment Management, which owns Vodafone shares.