The Indian telecom sector is all set for a huge makeover, with the merger of Idea and Vodafone leading to the creation of the world’s second largest telecom operator. The deal was finalised yesterday, with the merged entity planning to launch new services soon.
The deal, finalised between Vodafone Plc and Aditya Birla Group creates an entity which has a combined customer base of 400 million in the country. Bharti Airtel, the former leader in this space has around 268 million customers.
The companies will have a 1:1 swap ratio. Under the current scenario, Vodafone Plc has 50% stake, with Idea Cellular purchasing 4.9% stake for a price of Rs.110 per share. Idea will then have a 26% stake in the entity, with Vodafone having 45.1% ownership. The total investment of the Birla Group to purchase these shares will be Rs.3,900 crore.
The Aditya Birla Group will then purchase an additional 9.5% stake in the merged company over the next four years. Each stake will cost Rs.130. Once purchased, both stakeholders will own an equal 35.5% stake in the company.
The merged entity will be valued at Rs.94,600 crore.
Kumar Birla will be the chairman of the merged entity. The board will consist of six independent directors and six directors. Each promoter can nominate three directors to the board, including the chairman.
Vodafone will appoint the chief financial officer, while the appointment of the CEO and COO would be on the basis of a joint decision.
Birla laid to rest concerns about layoffs following the merger, saying that there would be no job cuts. The merger will save the company around $2.1 billion each year on operating costs.
The combined revenue share of the entities will be 41 per cent of the Indian market, pushing Bharti Airtel down to the second position. Bharti Airtel, which is planning to merge with Telenor will have a 35.6 per cent share post the merger.
With other companies looking at mergers to combat Reliance Jio, one can expect a number of developments in this space. Jio, with an investment of $25 billion amassed over 70 million subscribers in the first few months, with this customer base increasing at phenomenal rates.
The merged entity will have a spectrum of 1,850 MHz. Bharti Airtel and Reliance Jio have a spectrum of 1,489 MHz and 1,160 MHz respectively.
China’s China Mobile is the world’s largest cellular operator, having over 837 million subscribers as of 2016.