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Idea Vodafone merger gets SEBI approval, deal now pending in NCLT

The proposed merger of Vodafone India with Aditya Birla-owned Idea Cellular is now pending approval from the National Company Law Tribunal, Ahmedabad Bench. The deal received approvals from Competition Commission of India on 24 July 2017, and from SEBI on 04 August 2017.

Both companies had signed a definitive deal in March this year. Vodafone and Idea will have equal control over the merger entity. However, Vodafone will remain as the largest shareholder in the combined entity. Idea Cellular will additionally sell a 9.5% stake to Aditya Birla. The deal is expected to close by 2018, Vodafone said during its recent financial results. It was signed after Reliance Jio’s launch in September last year. Jio’s freebies have hurt telco’s earnings, forcing smaller telcos to look for an exit: Telenor is now merging with Airtel while Videocon has decided to partially exit the telecom industry and re-launch via an MVNO license.

Vodafone and Idea’s ARPU has been dropping constantly since Jio’s launch. For the quarter ended June 2017 (Q1FY18), Vodafone’s ARPU dropped to Rs 142 from Rs Rs 184 in the same quarter last year. While Idea reported an ARPU Rs 119 in Q1FY18 from Rs 142 in the year before. However, both telcos have also reported a growth in data usage, which can be an effect of free data offers.

Valuation and Merger scheme

Vodafone was valued at $12.4 billion, while Idea’s Valuations stood at $10.8 billion when the deal was signed in March. The combined entities will together hold a net present value (NPV) of Rs 670 billion (~$10 billion) after integration costs and spectrum liberalization payments. The proposed merger scheme between both companies:

  • Vodafone will own a 50% controlling stake in the combined entity, while Aditya Birla will own a 21% stake in the combined entity.
  • Post completion of the merger, Vodafone will transfer 4.9% stake in the merged entity to Aditya Birla for Rs 3,874 crore.
  • After the transfer of stake, Aditya Birla’s stake in the merged entity will be increased to 26% while Vodafone’s stake will reduce to 45.1%.
  • The remaining 28.9% stake will be open other shareholders.
  • Additionally, Aditya Birla will have the rights to acquire more stake from Vodafone at Rs 130 per share, for a period of 4 years.

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