International Joint Ventures and Merger & Acquisitions

Vodafone-Idea Marger - Ease of Doing Business in India

August 20, 2018

The merger of Vodafone, India’s No.2 telecom operator with Idea, India’s No. 3 telecom operator is undeniably one of the greatest deals in the telecom industry.

The merger of Vodafone, India’s No.2 telecom operator with Idea, India’s No. 3 telecom operator is undeniably one of the greatest deals in the telecom industry. The merger seems promising enough to outshine leading names like Bharti Airtel and Reliance Jio. The Vodafone-Idea merger will not only have huge impact on telecom sector but will be a landmark for future mergers in India.

Idea’s parent company, the Aditya Birla Group confirmed that the new entity born out of the merger is proposed to be named “Vodafone Idea Limited”. After the merger, Vodafone will own 45.1% of the combined company while the Aditya Birla Group’s Idea will own 26% after paying Rs 3,874 crores cash for a 4.9 percent stake. Vodafone shared that the merged entity will become the world's largest telecom operator and a leading communications provider in India "with lead in 12 out of the 22 circles, almost 400 million customers, 35% market share, and a 41% revenue market share”.

Earlier this year, Vittorio Colao, CEO of Vodafone Groups Plc was heard saying, “The swift way in which the Idea-Vodafone merger is progressing under a year shows the improvement in ease of doing business in India” at the World Economic Forum (WEF) governor’s meeting in Davos. All facileness went down the drain when the whole thing got entangled in the legalities as the Department of Telecom (DoT) decided to run a second round of legal opinion from the Assistant Solicitor General (ASG) on the demands of dues.

As per current M&A rules and regulations, one-time spectrum charge (OTSC) needs to be paid first. Consequently, ASG demanded Vodafone to pay the balance OTSC of 2014-15 merger of Vodafone’s six subsidiaries with Vodafone Mobile Services. DoT supports the ‘ease of business’ mantra and thus objected how the needs of present merger are related to the earlier one.
To avoid any post facto controversies, DoT decided to proceed with utmost caution as it was the first merger with 100% FDI proposal. Further to that Idea needed to furnish bank guarantees for its OTSC dues standing in the range of Rs. 8,100 crores estimated by DoT. Due to urgency, Vodafone and Idea paid over Rs. 7,200 crores dues and market fee for unauctioned airwaves and announced, “any further delay for according the approval of Vodafone licenses and Ideas would permanently impair the merged entity”.

Both Kumar Mangalam Birla, chairman of Aditya Birla Group and Vittorio Colao spent hours meeting and reaching DoT officials to accelerate the process. Ravinder Takkar (Shared Services Chairman Vodafone India), Sunil Sood (Managing Director Vodafone India) and Himanshu Kapani (Idea Cellur Managing Director) joined in to facilitate the merger as the company was losing Rs. 200 crores a day due to delays. The postponement of merger also affected the plan of critical unlocking of an estimated $10 billion dollars of costs and capital expenditure synergies that the new company needs to stay cutthroat on the existing 4G front.

The combined company, Vodafone-India seems to have great potential in market. It would have sufficient spectrum to compete effectively with other operators (Bharti Airtel and Reliance Jio) in the market. It would hold 1,850 MHz, including circa 1,645 MHz of liberalized spectrum acquired through auctions to build substantial mobile data capacity, utilizing the largest broadband spectrum portfolio with thirty-four 3G carriers and one hundred twenty-six 4G carriers across the country.

The Vodafone-idea merger will make the consumer king. The price-war started by Jio would face a great challenge as merged company has more resources and a much wider customer base already. Expenses of merged company would be reduced on branding and marketing along with that Vodafone-Idea would benefit from operational synergies by curtailing expenses such as co-location rentals and energy costs, customer acquisitions and support teams.

The Vodafone-Idea merger is a revolutionary move not just for telecom industry but also industries in India. This will stimulate the future M&A in India by great number and authenticate the mantra of “ease of doing business in India” as encouraged by the government.

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