Vodafone India merges with Idea; Combined entity valued at $23.2 bn

Vodafone has agreed to combine its Indian subsidiary, Vodafone India (excluding its 42% stake in Indus Towers) with Idea Cellular, creating India's largest telecom operator with country's widest mobile network.

Sustained investment by the combined entity will accelerate the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies, support the introduction of digital content and ‘Internet of Things’ (IoT) services as well as expand financial inclusion through mobile money services for the benefit of Indian consumers, businesses and society as a whole.

This is merger of equals with joint control of the combined company between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement. The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value of $12.4 billion for Vodafone India and $10.8 billion for Idea excluding its stake in Indus Towers.

Vodafone India has been valued at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA.

Voda-Idea will provide substantial cost and capex synergies with an estimated net present value of approximately $10 billion after integration costs and spectrum liberalisation payments, with estimated run-rate savings of $2.1 billion on an annual basis by the fourth full year post completion.

Vodafone will own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for $579 million in cash concurrent with completion of the merger. The Aditya Birla Group will then own 26% and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time. If Vodafone and the Aditya Birla Group’s shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post-closing, reducing Vodafone Group net debt by approximately $8.2 billion and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA. The transaction is expected to be accretive to Vodafone’s cash flow from the first full year post-completion.

The transaction is expected to close during calendar year 2018, subject to customary approvals.

Kumar Mangalam Birla, group chairman, Aditya Birla Group said, "This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the government’s Digital India vision a reality. For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”

Vittorio Colao, chief executive, Vodafone Group said, "The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India. 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. We look forward to working with the Aditya Birla Group to create value for all stakeholders.”

“Consolidation is a much anticipated and very welcome development in this beleaguered Telecom sector. It will help bring in operational efficiencies and improved quality of service to customers. The regulatory regime will have to ensure that benefits of effective competition continue to be availed by customers,” commented Arpita Pal Agrawal, Partner and Leader- Telecom, PwC India.

“We congratulate both our valuable members Vodafone and Idea on the announcement of the merger. This amalgamation will create the country's biggest telecom services provider with a customer base of over 394 million. We have seen some significant consolidations in the past and this announcement is a welcome and positive step in the direction of TSP coming together and creating resilient networks with a large asset base for an enhanced consumer experience,” said Rajan S Mathews, Director General, COAI.