Vodafone-Idea merger: 10 things you need to know

One of India’s biggest current deals, the Vodafone-Idea merger is expected to close during calendar year 2018, subject to customary approvals. Billed to create India’s largest operator, here are 10 things you need to know (in no particular order) at this exciting time.

10. Subsidiary

Vodafone to combine its subsidiary Vodafone India (excluding its 42 percent stake in Indus Towers) with Idea, which is listed on the Indian Stock Exchanges.

9. India’s largest operator

Highly complementary combination will create India’s largest telecoms operator with the country’s widest mobile network and a strong commitment to deliver the Indian government’s ‘Digital India’ vision.

8. Going wireless

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.

7. Equality

Merger of equals with joint control of the combined company between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement.

6. In line with recommendations

The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is INR828 billion (US$12.4 billion) for Vodafone India and INR722 billion (US$10.8 billion) for Idea excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA.

5. Initially costly

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.

4. Transfers

Vodafone will own 45.1 percent of the combined company after transferring a stake of 4.9 percent to the Aditya Birla Group for circa INR39 billion (circa US$579 million) in cash concurrent with completion of the merger. The Aditya Birla Group will then own 26.0 percent and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.

3. Five-year plan

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.

2. Voting rights

Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement.

1. Deconsolidation

Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post- closing, reducing Vodafone Group net debt by approximately INR552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA4. The transaction is expected to be accretive to Vodafone’s cash flow5 from the first full year post-completion.

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