Vodafone-Idea Cellular merger to create India's largest telco (Intro-Round Up)

Vodafone India and Idea Cellular, India's second and third largest operators, have agreed to merge their operations in the country to create a new market leading entity.

The planned combination would create India's largest wireless-network operator with nearly 400 million customers and bolster Vodafone's position in one of the world's fastest-growing telecom markets.

India's mobile industry was thrown into turmoil with the launch past year of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman, Mukesh Ambani, as part of his Reliance Industries (RELI.NS) conglomerate. The landscape for mobile operators, especially the 4G segment, has changed drastically after Reliance Industries Ltd. launched its Reliance Jio services for free for first three months and then at much cheaper cost. However, vodafone will have the sole right to appoint the chief financial officer.

The British firm will own 45.1 per cent of the merged entity while the Aditya Birla group, Idea's parent company, will own 26 per cent after paying Rs 3,874 crore cash for a 4.9 per cent stake, the two firms announced at a press conference here. Vodafone's 42% stake in Indus Towers isn't part of the deal.

The transaction gives Idea the option to buy 9.5% stake in the new company over the next four years at Rs 130 per share. The deal is expected to close in 2018.

That has forced India's three biggest operators - Bharti, Vodafone and Idea - to slash prices and accept lower profits, and sparked a wave of consolidation in the sector.

Axiata Group Bhd is analysing all potential impact on it arising from the proposed merger of Idea Cellular Ltd with Vodafone India. Idea Cellular met Vodafone officials in London, Dubai and Mumbai to hash out the deal terms, the people said. Vodafone and Idea will have to build a much stronger optic-fibre network than they possess today to benefit from the growth in the usage of data among India's smartphone owners.

Vodafone India will be deconsolidated by Vodafone and reported as a joint venture post-closing, reducing Vodafone Groups net debt by around United States dollars 8.2 billion.

Colao said on Friday the pending case, with India demanding more than $2 billion in taxes, will not affect the deal, which needs regulatory approval. He further said that the merger will also reduce debt and leverage for Vodafone's global entity.

Norwegian multinational Telenor announced last month that it was selling up to Airtel, saying the amount of money needed to be competitive in the multi-billion-dollar sector would not offer an acceptable level of return.



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