The board of Idea Cellular has approved the planned merger with Vodafone India and its subsidiary Vodafone Mobile Services, in a deal that is set to create India's largest telecom company.
Vodafone will own a 45.1 per cent stake in the the merged entity following the transfer of about 4.9 per cent of shares to Idea's promoters for ₹38.74 billion ($592.15 million) in cash, Idea said in a statement. Idea's promoters will have a 26 per cent stake in the company and the rest will be held by the public. Idea will have the sole right to appoint the chairman; both Idea and Vodafone will have the right to appoint three directors each.
The combined enterprise value of the two companies is about $23.2 billion.
The deal excludes Vodafone's 42 per cent stake in Indus Towers Ltd. Overtime, Idea's promoters will have the right to buy more shares in the company with the aim to have an equal stake as that of Vodafone. Idea and Vodafone have also signed a three-year "standstill" agreement, which doesn't allow the sale or purchase of shares to any third party during the period.
According to the standstill agreement signed by both companies, the merged company is valued at 946 billion rupees ($14.1 billion) in equity. That is equivalent to Rs 130 per share of the merged company, representing a premium of 80 per cent on the 30-day average price of Ideas' shares as of Jan 27, just before the deal was first announced by Vodafone. In January, Vodafone confirmed their respective boards were in discussions for an all-share merger following media reports.
Idea and Vodafone plan to continue their expansion into wireless broadband services across India with technologies including 4G, 4G+ and 5G. They also plan to boost digital content and introduce services such as Internet of Things, and mobile money offerings, the companies said.
The merger of the Vodafone India, India's second largest telco, and Idea, the third largest player, would topple Bharti Airtel from the number one spot, creating India's largest telecom player by revenue and subscribers. The proposed merged entity has combined revenues of over Rs 80,000 crores.
India's $26 billion telco market is likely to see further consolidation as many smaller players have been struggling to compete against the aggressive entry of Reliance Jio last year, which has unleashed tariff wars.
The deal is expected to close in 2018 following customary approvals, and the merger expected to be completed in the next two years. 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.
With inputs from Reuters.