Vodafone India, Idea Cellular merger: Good for promoters, employees face bleak future

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Vodafone Group Plc Chief Executive Vittorio Colao underscored the UK-based telecom carrier's commitment towards "creating greater professional opportunities" for its India staff following the mega merger of its India unit with Idea Cellular. The Aditya Birla Group will then own 26.0% of the combined company and Idea's other shareholders will own the remaining 28.9%.

Coloa said the new Vodafone India-Idea entity is a "merger of equals, with joint control" in the combined company. The COO and CEO for the merged entity will be jointly picked by Vodafone and Idea. "The brand strategy of the combined company will be developed in due course and will leverage customers' affinity for both existing brands, built up over the past decade".

Once the merger is complete, the entire business of Vodafone India and Vodaone Mobile Services - excluding Indus Towers' investment, global assets and IT platforms - will vest in the company.

Shares in Idea rose as much as 14.25 percent immediately after the merger news but gave up gains to be trading up 3.8 percent at 9:25 am.

"Vodafone will own 45.1 per cent of the combined company after transferring a stake of 4.9 per cent to the promoters of Idea and/or their affiliates for Rs 38.74 billion in cash concurrent with the completion of the amalgamation". Idea's turnover is Rs 36,000 crore. The scheme of amalgamation includes Vodafone India (VIL) and its wholly-owned subsidiary Vodafone Mobile Services (VMSL) merging with the new company.

"Vodafone Group and Idea Cellular announced they have reached an agreement to combine their operations in India (excluding Vodafone's 42 per cent stake in Indus Towers) to create India's largest telecom operator", a joint statement by the companies said.

The merger will result in substantial cost and capex synergies with an estimated net present value of around Dollars 10 billion after integration costs and spectrum liberalisation payments, with estimated savings of USD 2.1 billion annually from the fourth year of the merger. It closed around 10 per cent down at Rs 97.60 per share in the BSE.

Undercutting rivals in such a competitive markets left few options but to cut costs through mergers, with Bharti Airtel - the country's largest telecoms operator - having also recently agreed to buy Norwegian firm Telenor's Indian arm.

Given the present spectrum holding, revenue and subscriber base, both the companies need to work on synergy to comply with rules.

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