The largest telecom operator in India will no longer be Bharti Airtel: The board of Idea Cellular has approved the merger with Vodafone, with Vodafone India Ltd and its wholly owned subsidiary Vodafone Mobile Services Limited, with the entire business of these two companies being vested with Idea Cellular; this will not include Vodafone’s investment in Indus Towers, its international network assets and IT platforms. Post merger, Vodafone will own 45.1%, the promoters of Idea will hold 26%, and the balance shares will be held by the public. The deal is expected to be completed in as long as 2 years (during 2018), largely owing to the complexity of the transactions, and the approvals required. The transaction has a break-fee of $500 million “that would be payable under certain circumstances”.
The companies have estimated run-rate savings of Rs 140 billion ($2.1 billion) annually by the fourth full year, post completion of the merger.
– Valuation: Vodafone is valued at $12.4 billion, and Idea at $10.8 billion. Vodafone is valued at 6.4x EV/LTM EBITDA, and Idea at 6.3x EV/LTM EBITDA. The combined entities are projecting a net present value of around Rs 670 billion ($10 billion) after integration costs and spectrum liberalisation payments
– Turnover: Rs 814.03 billion. The Vodafone companies have a combined turnover of Rs 454.03 billion (55.8% of total), while Idea has a turnover of Rs 360 billion (44.8% of total).
– Total connections: 397 million connections: Idea has 192 million connections, while Vodafone has 205 million.
– Mobile Internet connections (2G+3G+4G): Idea has 48.58 million, while Vodafone has 65 milllion, giving the combine entity a grand total of 113.5 million connections. Note that Vodafone tends to count incidental users as active Internet connections, while Idea counts only those who have consumed more than 10mb in a month as active Internet connections.
– Mobile Broadband users: As per the latest available financial results, the combined entity had 62.02 million mobile broadband (3G+4G) subscribers, with Idea accounting for 27.02 million of these, and Vodafone for 35 million.
– Spectrum holdings: the combined entity will have 1850 MHz, including 1646 MHz of liberalised spectrum acquired through auctions. Given that India is divided into circles, the combined entity will have 34 3G and 129 4G carriers across India.
– Towers: Idea will contribute its standalone towers (15.4k and its 11.15% stake in Indus Towers, while Vodafone will contribute its standalone towers (15.8 k), but not its stake in indus towers.
The share split: how it works
- Management: The promoters of Idea will appoint the Chairman of the company, which will be Kumar Mangalam Birla. The CEO and COO of the joint entity will need to be approved by both Idea and Vodafone. Vodafone will appoint the CFO of the company.
- Timeline: The agreement contemplates the completion of the proposed amalgamation within a period of 24 months.
- Board positions: Promoters of Idea and Vodafone have the right to nominate 3 directors each. The Board will include six Independent Directors.
- Net debt: Idea’s will contribute net debt of $7.9 billion to the combined entity, while Vodafone India net debt contribution will be $8.2 billion.
- How the split will happen: First, upon the amalgamation of Vodafone Mobile Services Limited, Idea will issue an aggregate number of equity shares to Vodafone India Limited equal to 47% of the post-issue paid up capital. Immediately thereafter, and on the amalgamation of Vodafone India Limited, these shares will stand canceled, and Idea will then issue shares equal to 50% of post-issue paid up capital to Vodafone. Vodafone will own 45.1% of the combined entity, after transferring a stake of 4.9% to the promoter group of Idea for Rs 38.74 billion in cash. The Promoters of Idea will hold 26% of the Company and the balance will be held by the public.
- Future equalisation of shareholding: There’s a standstill agreement for 3 years post merger, during which neither party can buy shares from the market for 3 years. During this period, the Aditya Birla Group has the right to acquire an additional 9.5% stake in the combined entity from Vodafone, which values the combined entity at $14.1 billion. This is at Rs 130 per share, which is a premium of 80% to Idea’s share price of Rs 72.5 on January 27th 2017. If the shareholding hasn’t equalised over the first three years, the Aditya Birla Group has to inform Vodafone how many shares it intends to acquire, and then it has 12 months to purchase shares at the prevailing market price. If Vodafone and the promoters of Idea do not have equal shareholding by expiry of the 4th year from the completion of amalgamation, Vodafone is obliged to sell its shares in order to equalise that with the promoters of Idea over the following 5 year period. Until then, the additional shares held by Vodafone will be restricted, and votes will be exercised jointly under the terms of the Shareholder agreement.
- Capital structure and dividend policy will be finalised post merger
We’re updating this post with more details. Please keep checking for updates