Idea-Vodafone merger: Government approves telecom deal, companies to complete few formalities before closure
Shares of Idea Cellular gained over 4 per cent on Monday ahead of a likely approval by the Department of Telecommunications (DoT) to the merger of Vodafone India and Idea Cellular.
Top management of Vodafone, the British telecom firm, met the minister yesterday after the deal was given conditional approval by the Department of Telecom on July 9.
Telecom Minister Manoj Sinha said on Wednesday that the government has approved the Idea Cellular and Vodafone India merger, the sector’s biggest, but the companies need to complete some formalities for the final closure of the deal. “We have already approved merger of Idea-Vodafone. There are some formalities which are pending that they have to complete for it (the merger),” Sinha told reporters on sidelines of a BSNL event — the first on-record confirmation from the government side.
Top management of Vodafone, the British telecom firm, met the minister yesterday after the deal was given conditional approval by the Department of Telecom on July 9. “They met me and to thanked that we have done it very quickly,” Sinha said. Vodafone CEO designate and Chief Financial Officer Nick Read, after meeting Sinha, had yesterday confirmed receiving the letter approving the merger. “We are happy to receive the letter,” he had said.
There have been industry speculations that Idea Cellular and Vodafone may challenge in court the demand of Rs 3,976 crore for one time spectrum charge of Vodafone India, and joint bank guarantee of Rs 3,342 crore sought by DoT before it grants final approval for the merger.
Vodafone executives did not respond to queries over their plans to make payment and furnishing bank guarantee. Vodafone CEO Vittorio Colao, who will remain in office till October, said: “Yes. I am optimistic” that the new entity, to be named Vodafone Idea Ltd, will be in place before he remits the office.”
When asked for plans of the British telecom firm post the new entity comes in place, Read said: “We have always been a strong investor in India. We will remain that”. The combined operations of Idea and Vodafone will create the country’s largest telecom operator worth over USD 23 billion (or over Rs 1.5 lakh crore), with a 35 per cent market share and a subscriber base of around 430 million.
Debt-ridden firms Idea and Vodafone India are in process of merging their businesses in India as it is expected to bring down cost of their operations and give them relief from cut-throat competition in the market where margins have hit rock bottom with free voice calls. Vodafone Idea will have the capacity to provide 4G spectrum in all telecom circles of the country. According to a presentation by Idea, the combined 4G spectrum of both the companies is capable of offering up to 450 megabit per second broadband speed on mobile phones in 12 telecom areas in the country.
With the new entity coming in force, Bharti Airtel will lose the tag of India’s biggest telecom service provider to the new entity. The combined debt of both the companies is estimated to be around Rs 1.15 lakh crore. Vodafone will own 45.1 per cent stake in the combined entity, while Kumar Mangalam Birla-led Aditya Birla Group will hold 26 per cent and Idea, 28.9 per cent. The Aditya Birla Group has the right to acquire up to 9.5 per cent additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholding over time.
Balesh Sharma will be the new CEO of the merged entity. Idea’s chief financial officer Akshaya Moondra will head the financial operations of the new entity as its CFO. Ambrish Jain, currently the deputy MD at Idea Cellular, is set to become the new chief operating officer.