Vodafone India confirms it is merging with Idea Cellular to form India’s largest telco

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Vodafone India has confirmed that it has reached an agreement to acquire rival Idea Cellular. The deal, which is being painted as a merger, will create India’s largest operator with some 377 million customers.

The company revealed it was in talks with Idea Cellular over a deal in January, and the coming-together was announced today. Subject to the relevant approvals, it is expected to close sometime next year.

Vodafone is taking an initial 45.1 percent stake in the combined entity, with Idea Cellular parent Aditya Birla Group holding 26 percent. The duo have arranged a schedule that will see those shareholdings equalized over time. However, if after four years both parties don’t own the same amount, Vodafone has agreed to sell down its shares to ensure parity of ownership over the following five years.

Vodafone and Idea rank second and third in India with around 200 million and 177 million customers. Post-merger, the joint entity will overtake Airtel, which claims 269 million subscribers, as things stand. But Airtel is also on the cusp of M&A, too. It announced plans to gobble up Telenor India in a move that will bolster it with an additional 44 million subscribers. That’s not enough to beat out Vodafone-Idea, but that’s hardly the point here: the telcos are all reacting to the disruption caused by the emergence of Reliance Jio, the ambitious upstart funded by India’s wealthiest businessman.

Reliance introduced a series of low-cost offerings last November , including 4G coverage, which saw it reach 100 million subscribers in 170 days . The operator initially offered a free internet package which will end April 1, after which it will be interesting to see how it competes with its rivals. Already, though, they are making plans to be more competitive. Vodafone India said its merger with Idea will net it significant savings as both operators pool infrastructure and associated costs.

Substantial cost and capex synergies with an estimated net present value of approximately INR670 billion (US$10.0 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of INR140 billion (US$2.1 billion) on an annual basis by the fourth full year post completion.

“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,” Vodafone Group CEO Vittorio Colao added in a statement.

Featured Image: Flickr UNDER A CC BY 2.0 LICENSE

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