Vodafone Idea Merger Swap ratio Horizontal merger Telecom sector

1. Divya Adhikari
AmityUniversity, Mumbai
Vodafone Idea Merger

2. Vodafone
• VodafoneGroup PLC is a multinational telecommunications company.
• As of 2018,Vodafone owned and operated networks in 25 countries, and had
partner networks in 47 further countries.
• ItsVodafoneGlobal Enterprise division provides telecommunications and IT
services to corporate clients in 150 countries.
• Vodafone has a primary listing on the London Stock Exchange and is a
constituent of the FTSE 100 Index.
• It had a market capitalisation of approximately £52.5 billion as of 10 February
2016, the eighth-largest of any company listed on the London Stock
Exchange.The company has a secondary listing on NASDAQ.

3. Idea
• IdeaCellular is anAditya Birla Group Company, India's first truly multinational
corporation.
• Idea is a pan-India integrated GSM operator offering 2G and 3G services, and has
its own NLD and ILD operations, and ISP license.
• With revenue in excess of $4 billion; revenue market share of 18%; and subscriber
base of over 150 million, Idea is India’s 3rd largest mobile operator. Idea ranks
among theTop 10 country operators in the world with a traffic of over 1.5 billion
minutes a day.
• Idea’s robust pan-India coverage is built on a network of over 100,000 2G and 3G
cell sites, spread across over 55,000 towns in India.

4. Vodafone and
Idea Merger
Implications thatVodafone Idea merger will bring forth on the telecom industry:
• Initiatives based on price renewal, new packages for the disruptive entry by
Jio has cause some serious misbalance.
• India is fastest growing market in terms of the subscriber base. So such
mergers will help in infusion of health and life of telecom sector.
• Through the merger,Vodafone and Idea will overcome the heavy debt
amount and large sum of credit will be infused in the system.

5. Contd. • The revenue market share is expected to rise for all the
locations and the spectrum of the entity would exceed
the initial caps.
• Vodafone Idea merger will enhance in wide spread of
network availability.
• There will be saving of the operations cost and this will
aid in improving the quality and performance of the
service through investments.
• Also, this merger has helped bothVodafone and Idea
from selling off their business, as was being planned by
them initially which would have further impacted the
quality of services being provided by different players
in the industry.

6. • Vodafone Idea is a horizontal merger as both deal in telecom sector.
• The main motive behind merger wasVodafone's global enterprise expertise
and Idea’s strong local reach will give you more network coverage, more
value, and access to newer and smarter technologies.
• This merger will allowVodafone Idea Ltd to provide the best products and
superior services to its customers.You can expect MORE of everything-
MORE network coverage, MORE value, MORE excitement, newer and
smarter technologies likeVoLTE, Digital wallets and Internet ofThings along
with an access to MORE touchpoints.
• The success of the mega merger between Idea Cellular Ltd andVodafone
India Ltd depends largely on synergy benefits that can accrue by combining
operations. Not surprisingly, the two companies are factoring in huge gains
on this count.

7. Synergy- Financial and
Operational
• Vodafone and Idea said in a statement that annual savings, both in terms of operating costs as
well as capital expenditure, will be around Rs14,000 crore annually by the fourth full year of
operations as a combined entity. About two-thirds of this will be on account of savings in
operating costs.The net present value of total savings (opex and capex) is estimated at Rs70,000
crore ($10.5 billion).
• Opex and capex are short for operating expenditure and capital expenditure, respectively.
• Idea andVodafone individually operate at an EBITDA margin of around 30%, far lower than Bharti
Airtel Ltd’s margin of around 40% and Reliance Jio Infocomm Ltd’s targeted margins of 50%.

8. • Vodafone and Idea’s holdings of 3G and 4G spectrum was far lower than that
acquired by Airtel and Reliance Jio.
• This also inhibited their ability to compete effectively, given the shift towards
increased data usage by customers. Coming together will enable Idea and
Vodafone to operate in the same league, as far as spectrum footprint goes.

10. • On a standalone basis, analysts at JM Financial Institutional Securities Ltd had
forecast Idea’s net Debt/Ebitda ratio to reach around 5.5 times by end March
2017.
• In contrast, the forecast 3 times net Debt/Ebitda ratio for the combined entity
is far lower.

12. SWAP ratio
• The two companies agreed to merge their operations with a swap ratio of 1:1.This means every Idea share
you hold will be exchanged with a new share in the merged company.This suggests that operationally, it is
a merger of two equals. However, an independent valuation of the two businesses suggestsVodafone’s
business is worth more.The assessment suggestsVodafone India’s business is worth Rs 82,800 crore, while
Idea’s business is valued at Rs 72,200 crore. Analysts are positive about a merger of two large companies. In
the long-term, such a consolidation could be good for future profit margins, analysts suggest.
• The first step for AB group would be the acquisition of 4.9 percent of shares fromVodafone.This would
amount to a total of Rs. 3874 crore wherein each share is worth Rs. 108.This would be helpful in increasing
the share holding capacity of Idea to 26 percent
• WhileVodafone holds 45.1 percent of the shares in the merger, Idea would be allowed to buy another 9.6
percent but at a cost of Rs. 130 per share in the period spread over next four years. However, if Idea is
unable to come up equal to the shareholding percentage ofVodafone, it can go forward and buy the
number of shares required further but at the price prevailing in the market

13. Reference • https://en.wikipedia.org/wiki/Vodafone_Idea
• https://www.ideacellular.com/content/ideadigital/in/en/fa
qs/idea-vodafone-merger.html
• https://economictimes.indiatimes.com/industry/telecom/t
elecom-news/vodafone-idea-will-shut-shop-if-there-is-
no-government-relief-km-
birla/articleshow/72396252.cms?from=mdr
• https://www.dailyo.in/technology/vodafone-idea-
telecom-reliance-jio-airtel-4g-5g-offers-
deals/story/1/26388.html
• https://www.livemint.com/
• https://www.kotaksecurities.com/ksweb/Meaningful-
Minutes/4-Things-to-know-about-the-Idea-Vodafone-
Merger
• https://www.jagranjosh.com/articles/idea-and-vodafone-
merger-a-saga-of-becoming-indias-largest-telecom-
company-1490598696-1