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Aditya Birla Group’s telecom arm Idea Cellular Ltd approved the merger of Vodafone Plc.’s Indian wireless business with itself, in a deal that will create the country’s largest mobile services operator.
Vodafone will hold 45.1 percent of the merged entity, while Idea Cellular’s promoters will hold 26 percent, according to a filing to the stock exchanges. The implied enterprise value for Vodafone India stands at Rs 82,800 crore while that of Idea Cellular stands at Rs 72,200 crore, excluding its stake in Indus Towers.
Transaction Fineprint
Idea Cellular will issue shares equal to 50 percent of the post issue paid-up capital of the merged entity to Vodafone. The promoters of Idea Cellular will then have to pay Rs 3,874 crore to buy out 4.9 percent stake in the merged entity.
Vodafone India and Idea Cellular cannot buy or sell their shares to any third party for the first three years after closing of the deal. During the period, the Aditya Birla Group will have the right to purchase up to 9.5 percent in the combined company from Vodafone Plc at Rs 130 per share.
If their shareholdings are not equalised in the first three years, the Aditya Birla Group will have to inform Vodafone how many more shares it wishes to acquire. The group will then have 12 months to complete such a purchase at the prevailing market price.
Five years after completing the deal, if the two companies still do not have an equal stake in the merged entity, Vodafone will sell shares in the open market in the following five-year period to bring its stake to the level of Idea Cellular’s holding.
Board Composition
Vodafone and Aditya Birla Group will have the right to appoint three directors each to the 12-member board of the combined entity. Kumar Mangalam Birla will be the chairman of the entity, while Vodafone and the Birlas will jointly appoint the chief executive officer and the chief operating officer. Vodafone will have the right to appoint the chief financial officer.
Reliance Jio Effect
The entry of Mukesh Ambani’s telecom unit, Reliance Jio Infocomm Ltd, has spurred a wave of consolidation in the Indian telecom market. Apart from Idea and Vodafone, Reliance Communications Ltd. and Aircel Ltd. have announced plans to merge their operations, while Bharti Airtel Ltd acquired the assets of Telenor (India) Communications Pvt in February.
Stock Reaction
The Idea Cellular stock rallied as much as 14.5 percent to Rs 109.25 before reversing course and falling as much as 14.9 percent to Rs 92. That compares with a 0.5 percent decline in the S&P BSE Sensex Index.
The company’s stock has fallen 8.1 percent in the past month, compared to a 3 percent advance in the Sensex.
(This article was originally published on BloomberQuint)
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