Vodafone-Idea merger: DoT gives final approval; deal spawns nation's biggest telecom operator worth over $23 bn

The Department of Telecom (DoT) on Thursday gave its final approval to the Vodafone-Idea Cellular merger, government sources said. The merger will create the country’s biggest telecom operator and the behemoth – Vodafone Idea Limited – will dislodge Bharti Airtel, the current market leader with 344 million customers, from its pole position. India is the world’s second-largest mobile phone services market by users after China. The deal follows a broader trend by the country’s network operators who are rushing to consolidate amidst a year-long price war sparked by the entry of Reliance Jio. The DoT has specified that the licenses of Vodafone Mobile Services Limited (VMSL) and Vodafone India will be transferred to Idea Cellular Ltd, along with the assets and liabilities of both the Vodafone companies, sources familiar with the development told The Economic Times. A senior DoT official privy to the development said the two entities will now apprise the Registrar of Companies (RoC) of the various approvals received, wrapping up the last leg of formalities. The approval comes with the riders that the merged entity will have to abide by the decisions of the telecom tribunal and other courts. [caption id=“attachment_4285325” align=“alignleft” width=“380”] Representational image. ThinkStock.[/caption] Kumar Mangalam Birla will be the non-executive Chairman and Balesh Sharma the new CEO of the merged entity, which will remain listed. Shareholding pattern Vodafone will own a 45.1 stake in the combined entity, while the Aditya Birla Group will have 26 percent and Idea shareholders 28.9 percent. The Aditya Birla Group has the right to acquire up to a 9.5 percent additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholdings overtime. If Vodafone and the Aditya Birla Group’s shareholdings in the combined company are not equal after four years, Vodafone will sell shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period. Market share The combined operations of Idea and Vodafone will create a telecom operator worth over $23 billion (or over Rs 1.5 lakh crore), with a 35 percent market share and a subscriber base of around 430 million. The merger is expected to give both debt-ridden Idea and Vodafone a breather from cut-throat competition in a market where margins have hit rock bottom with free voice calls. Following the development, shares of Idea Cellular surged over four percent to Rs 57.50 in afternoon trade on Thursday. Idea, a part of the Aditya Birla conglomerate, and Vodafone signed a merger agreement last year. “Idea Cellular and Vodafone have made payment under protest as demanded by the DoT for the merger. Rs 3,926.34 crore have been paid in cash and bank guarantee of Rs 3,322.44 crore have been furnished,” said an Idea Cellular official, confirming the development. Vodafone Group CEO Vittorio Colao on Wednesday said the company expects the merger to close in August. Britain’s Vodafone is the world’s second-largest cellphone operator. On Tuesday, inching closer to the formation of the country’s biggest telecom operator, Idea Cellular and Vodafone made a joint payment of Rs 7,248.78 crore, under protest, to the DoT for merging their mobile business. The Department of Telecom gave its conditional nod for the merger of the two firms on 9 July and asked the companies to meet the demand raised for taking the merger on record. --With inputs from agencies