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New Indian Market Leader To Be Created By Vodafone And Idea Cellular

New Indian Market Leader To Be Created By Vodafone And Idea Cellular
With the aim to create India’s biggest telecoms business in a bid to contest a brutal price war sparked by new rival Reliance, Britain's Vodafone Group and Idea Cellular agreed on Monday to merge their Indian operations.
With an implied enterprise value of 828 billion rupees ($12.66 billion) for Vodafone and 722 billion rupees for Idea, the combined Vodafone-Idea group would have almost 400 million customers, or 35 percent market share.
"The combined entity will become the leading challenger with the scale to compete more effectively," Idea said in the statement.
Last year, India's richest businessman, Mukesh Ambani, built the new 4G mobile broadband network as part of his Reliance Industries conglomerate, and India's mobile industry was thrown into turmoil with that launch  - Reliance Jio Infocomm, built at a cost of more than $20 billion.
India's three biggest operators - Bharti Airtel, Vodafone and Idea – were forced to slash prices and accept lower profits as Jio has made an impact with free voice calls and cut-price data services.
"Consolidation is a much anticipated and very welcome development in this beleaguered telecom sector," said Arpita Pal Agrawal, a partner and telecom analyst at PwC India.
"It will help bring in operational efficiencies and improved quality of service to customers."
With fierce competition and a high-profile tax battle making a business contributing more than 10 percent of its revenues and profits its most unpredictable by far, Vodafone has endured a tumultuous ride since it entered India in 2007.
As traders expressed concerns about how the merged entity would value Idea's stake, shares in Idea fell as much as 14.6 percent, after it rose as much as 14.25 percent immediately after the news.
Idea said that after it transfers about 4.9 percent to promoters of Idea and/or their affiliates for 38.74 billion rupees ($592.15 million) in cash, Vodafone, the world's second-largest cellphone operator, will own 45.1 percent of the merged entity.
Other shareholders of Idea will own the remaining 28.9 percent while Aditya Birla Group, the majority owner of Idea, will own 26 percent. Eventually an equal share of the joint venture is planned o be owned by Aditya and Vodafone.
A combined enterprise value of $23.2 billion will be accorded to the joint venture.
Idea said on Monday that after integration costs and spectrum payments, cost and capex synergies of about $10 billion in net present value is expected by Vodafone and Idea which first announced they were in talks in January.
While Vodafone would appoint the chief financial officer, Idea would have the sole right to appoint the chairman.
Approval of both companies, which would get the right to nominate three board members each, would be required for the appointment of a chief executive officer and a chief operating officer.
Indus Towers, a joint venture between the British group, a unit of Bharti Airtel and Idea Cellular, has Vodafone’s 42 percent share and the deal does not include Vodafone's that share.
To reduce debt, they would use their respective stakes in Indus Tower as well as standalone tower assets, both Idea and Vodafone said. Idea owns 11.15 percent of the joint venture, while Vodafone owns 42 percent.

Christopher J. Mitchell

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