Vodafone Group may announce its final agreement to merge its Indian operation with rival mobile operator Idea Cellular in a £21 billion deal in a few days, UK’s Telegraph reported. The publication’s sources said that Vodafone and Aditya Birla Group talks had reached an advanced stage and that an agreement “could be announced this week.” They, however, said that the deal negotiation has proven to be complicated and delicate for Vodafone, which might result in delays.
Under the deal, Vodafone and Aditya Birla Group, which is Idea Cellular’s controlling shareholder, will hold equal stake over the combined company. “The structure a “face-saving” move to preserve Birla family pride – under a simpler deal they would be the junior partner in a joint venture,” the publication sources said.
Vodafone Group plans to deconsolidate its Indian subsidiary from its accounts, in a move to take its debts off the main company balance sheets, the report said. It added that both Vodafone India and Idea are worth about £5 billion with the remainder of the deal value made up by debts, the report said.
Rating agency Fitch in a recent note said that the combined entity of Vodafone India and Idea Cellular would have a more balanced subscriber mix, as the current second largest telco is strong in urban areas whereas the Aditya Birla Group telco focuses more on the rural mass market,
The proposed merger would also help both the telecom operators withstand intense price competition brought by Reliance Jio in the Indian telco market. The merger, however, is unlikely to lead to increased pricing power for operators in the short term, the agency said.
Fitch had estimated that the merger would create an entity with 390 million subscribers, a leading revenue market share of around 40%, revenue of $11billion-$12billion, and an EBITDA margin of about 28%-30%.
The agency also said that the proposed merger would also create significant opportunities for capital expenditure (Capex) savings by eliminating duplicate network investments and avoiding future spectrum auctions, given the combined entity should have sufficient spectrum portfolio to expand 3G/4G services across 22 Indian regional markets – or ‘circles’.
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