The National Company Law Tribunal (NCLT) has approved the proposed merger between Idea Cellular and Vodafone -- a move that brings both the companies closer to culminating the deal. On 20 March last year, Vodafone India, the Indian subsidiary of the UK-based Vodafone Group plc, the world's second-largest mobile phone company, announced its merger with the Aditya Birla Group-owned Idea Cellular, India's third-largest telecom operator.
Together, they are expected to create an entity worth over USD 23 billion, which will become India’s largest telecom company with a 35 per cent market share (in terms of customers) and over 400 million customers.
The deal is very important not just for the two telecom majors who are recording losses and customer base reduction, but also the sector itself, which has been facing a huge disruption since the launch of Reliance Jio’s free or low-priced data and voice call offers. The scheme put pressure on other key players to provide the same or an equivalent. The tax hike on the sector from 15 to 18 per cent due to the Goods and Services Tax (GST) only makes matters worse.
Here is all you need to know about the deal:
The deal gives Vodafone an implied enterprise value of Rs 82,800 crore and Idea Rs 72,200 crore. The merged entity will counter the telecom leader Bharti Airtel which has a 23.59 per cent market share in terms of subscribers.
As per the deal, Vodafone will hold a 45.1 per cent stake in the merged entity, the Aditya Birla Group will hold 26 per cent after paying Rs 3,874 crore cash for a 4.9 per cent stake and the remaining 28.9 per cent will be held by the public. Vodafone's 42 per cent stake in Indus Towers Ltd (provides infrastructure services to telecom operators) will not be included in the merger.
The merger deal, which was expected to be sealed by March 2019 (with the name of the joint entity to be announced later), is now likely to close as early as March-April 2018, according to American Bank Meryl Lynch, as quoted in an Economic Times report dated December 13, 2017. Ericsson, Nokia and Huawei will be involved in integrating the process and will be the network gear suppliers to both firms.
For the merger, the two companies first approached the approval of Competition Commission of India. On July 24 last year, the CCI gave its approval to the merger.
On October 13, shareholders of Idea Cellular gave their approval. Over 99 per cent of Idea shareholders voted in favour of the merger at the shareholders' meeting on October 12, 2017.
Following the shareholders' approval, the companies sought approval from the National Companies Law Tribunal (NCLT).
Both the groups can now go ahead for the final approval for merger from the Department of Telecom after Vodafone's appeal for the scheme also gets NCLT nod. In that case, the merger of the two giants can get sealed sooner than anticipated, putting an end to worries over the delay in getting all approvals, given the state of flux the telecom sector is in right now.
Vodafone India had reported a USD 4.5-billion operating loss in fiscal 2017 due to intense competition after Reliance Jio launched its 4G services in September. Revenues from India fell 4.9 per cent. Idea’s consolidated loss went up from Rs 328 crore for the three months ended March 31, 2017, to Rs 1,107 crore for the September 2017 quarter. A Bloomberg Quint report dated December 11 said that Vodafone and Idea Cellular had a combined revenue market share of 44 per cent at the time of the merger announcement, but in December 2017, it had fallen to 37.8 per cent, according to data from TRAI. Jio was blamed once again.
Experts are hopeful for the consolidation of the Indian telecom sector with the number of big players reducing to 3-4 --- Vodafone-Idea, Reliance Jio, Bharti Airtel and BSNL, which means lesser competition and more revenue. According to analysts at Deutsche Bank Markets Research, as quoted in a Business Standard report, the benefits of sectoral consolidation may far outweigh the competitive impact of Jio’s entry. While service quality is bound to get better for the customers once the merged entity emerges, experts don't have a consensus on whether prices will come down or increase in the long run.