Vodafone PLC (LON:VOD) has confirmed plans to create the biggest player in India’s fast-growing mobile telecoms sector by agreeing around a US£23bn “merger of equals” of its Vodafone India unit with Aditya Birla Group's Idea Cellular.
Talks on a deal, which excludes Vodafone’s 42% stake in Indian telecoms infrastructure business Indus towers, were first confirmed at the end of January.
The merger will form the largest operator in India, with the combined company having nearly 400 mln customers, a 35% customer market share, and 41% revenue market share.
Vodafone will own 45.1% of the new combined company after transferring a stake of 4.9% to Aditya Birla group for around 39bn rupees, or around US579mln, in cash.
Adita Birla will then own 26.0% of the business, and will have the right to acquire more shares from Vodafone under an agreed mechanism intended to equalise their shareholding over time.
The implied enterprise value of the deal is 828bn rupees, or US$12.4bn for Vodafone India, and 722bn or US$10.8bn for Idea.
Vodafone India will be deconsolidated by Vodafone, and will be reported as a joint-venture after the deal closes.
Close next year …
The merger is expected to close during 2018, subject to approvals, and add to Vodafone's cash flow from its first full year following completion.
The two expect to be able to realise "substantial" cost and capital expenditure synergies, with an estimated value of around 670bn rupees, or US$10.0bn, and with estimated run rate savings of around 140bn rupees, or US$2.1bn on an annual basis by the fourth full year after completion.
Vodafone’s chief executive Vittorio Colao said: "The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian.”
The move comes as Vodafone and Idea, currently the second and third largest players in India have had to fend off fierce competition from new market entrant Reliance Joi Infocom, which entered the market last year.
Airtel, the largest operator in the country, recently agreed to buy Norwegian firm Telenor’s Indian arm.
Vodafone booked a hefty €5.0bn impairment on the Indian subsidiary last November hit by Joi’s aggressive pricing plans. The FTSE 100-listed firm had previously been considering a float of the Indian business.
Shares unmoved ...
In early trading, Vodafone shares drifted 0.1%, or 0.25p lower to 211.15p.
Neil Wilson, senior market analyst at ETX Capital said: “Shares are virtually unmoved on the announcement, rising just a shade as it expected and as investors wait for what’s expected to be a fairly downbeat set of annual results in May.”
But, he added: “A sensible move by Vodafone as it just doesn’t have the appetite to fight a long and bitter price war on its own. A unit that does little for free cash is better let go its own way for now.”
He added: “With (de)consolidation in India sorted, what now for Vodafone?
“Talk of a merger with US group Liberty Global has been doing the rounds for a while in the City and Vodafone CEO Vittorio Colao recently said the merits of such a tie-up remain undimmed.
“Given the appetite for deals at the moment, and the depressed value of sterling post-Brexit, there is a chance Vodafone and Liberty could jump into bed together.”
-- Adds share price, broker comment --