vodafone-idea merger

2. Introduction
• Aditya Birla Group facilitated Vodafone India and Idea Cellular have
completed the merger to create the country's largest telecom company with
408 million active subscribers and a revenue market share of 32.2%.
• The new board of 12 directors (including six Independent directors ) of just
merged Vodafone Idea met on Friday morning with Kumar Mangalam Birla
as the chairman.
• Vodafone Idea will have a spread of 15,000 branded stores and 1.7 million
retail touch points across the country.

3. Type Of Merger
• Both Vodafone and Idea operates in the same industry so they adopted a horizontal
method of merger.
• 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.
• Asn independent valuation of the two businesses suggests Vodafone’s business is
worth more. The assessment suggests Vodafone 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.

4. Life Cycle Age of Both The Companies
• The first thing which differentiates Vodafone from its competitors is its method of
segmentation. The main categories in which Vodafone has segmented its customers are
Geographic (Circle A, Circle B, Circle C), Demographic (Income, Age, Nature of the
customer), Psychographic (Lifestyle & personality), Behavioral (Benefits sought, usage
rate, Types of services required).
• The next part of their unique strategy is their marketing & advertising. A new Marketing
Framework has been developed and implemented across the business, which includes a
new vision of expanding the Group’s category from mobile only to total
communications.
• Through their various creative advertising & promotion campaigns they have
demonstrated that great ideas executed with a vision & passion make more of a difference
than other clichéd promotion techniques.
• Another very crucial factor is brand experience. Vodafone continues to implement
Vodafone’s promise of “helping customers make the most of their time”. Their
communication strategy has always focused on “Happy to help” which tends to strike an
emotional chord with the customer.

5. Life Cycle Age of Both The Companies
• Idea Cellular Ltd. is the third largest wireless operator by subscribers in India with
a Revenue Market Share of approximately 15.9% of the Indian mobile
telecommunications services industry in Q3 December 2017.
• Idea Cellular is a pan-India integrated wireless broadband operator offering 2G 3G
and 4G services and has its own National Long Distance (NLD) and International
Long Distance (ILD) operations and Internet service provider (ISP) license.
• In the year 1997 they commenced operations in the Gujarat and Maharashtra
Circles. In the year 2000 the company merged with Tata Cellular Ltd thereby
acquired original license for the Andhra Pradesh Circle.
• Idea added nearly 50000 broadband sites over the last 12 months period ending
August 2017 growing its broadband footprint to cover 5888 Census towns and
nearly 105755 villages reaching out to 45% population of the country.

6. Motives Of Merger
• Vodafone India and Idea Cellular decided to have a merger of equals. Vodafone and the Aditya Birla Group
will have a joint control of this combined company. Once you combine the Vodafone and idea customers, the
merged entity could be the biggest telecom company in India. It would have nearly 40 crore customers, 35%
customer market share and 41% revenue market share.
• 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. The assessment suggests Vodafone
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.
• While Kumarmangalam Birla has been named the chairman of the merged entity, a new Chief Executive
Officer (CEO) and Chief Operating Officer (COO) are yet to be appointed. Vodafone will appoint the Chief
Financial Officer (CFO) later. The new management structure is expected to evolve over the next 12-18
months. A good management is essential for investors.
• To maintain an equal partnership, Vodafone will have 45.1% stake in the combined company. This is after
transferring a 4.9% stake at Rs 110 per share to Aditya Birla Group for Rs 3,900 crore in cash. Aditya Birla
Group will then own 26% of the combined company. The remaining 28.9% will be owned by Idea
shareholders.

7. Synergy
• Vodafone has been very conservative with the Rs 130 figure, but in the true
sense, if one adds the $10 billion operational synergies to the Rs 72.5 a unit
that has been taken to peg the enterprise value of the companies for the deal,
the value of the merged entity comes to around Rs 160 a share.
• With the new entity coming in force, Bharti Airtel, NSE 5.86 % will lose the
tag of India's biggest telecom service provider to the new entity. The
combined debt of both the companies is estimated to be around Rs 1.15 lakh
crore.
• Vodafone will own 45.1 per cent stake in the combined entity, while Kumar
Mangalam Birla-led Aditya Birla Group will hold 26 per cent and Idea, 28.9
per cent

8. Valuation Methodology, Model & Swap Ratio
• The merger between Vodafone and Idea will be executed through a stock swap. As part of the deal, idea will
issue shares to Vodafone to the extent of 50% of the post-issue capital. Of these, Vodafone India will give a
4.9% stake in the merged entity to the Aditya Birla Group. Thus, Vodafone will effectively hold 45.1% in the
merged entity.
• Post the merger, Vodafone India will hold 45.1% stake in the merged entity while the Aditya Birla Group will
hold 26%. The remaining shares will be held by the public. It needs to be remembered that this deal excludes
Idea’s holdings in the Indus Towers Business, which it is anyways currently negotiating to sell to ATC of the
US. However, the telecom infrastructure company held by Idea will be part of this deal. Aditya Birla Group
will have the right to buy an additional 9.5% stake in the company at Rs.130/share over the next 3 years.
• The valuation of the merged Vodafone India-Idea Celullar entity is likely more around Rs 160 a share, 23%
higher than the Rs 130 a unit price that the UK telecom has agreed to sell its shares at to the Aditya Birla
Group, after accounting for all the operational synergies.
• The P/E ratio looks at the relationship between the stock price and the company's earnings. The higher the P/E
the more the market is willing to pay for the company's earnings.

9. Vodafone-Idea Deal Value
• The combined entity would have almost 400 million customers, overtaking market
leader Bharti Airtel to account for about 40 percent of revenue of the world’s
second-biggest mobile phone services market by users after China.
• Shares in Idea rose as much as 14.3 percent after the news but then fell 10 percent
to 97.70 rupees as traders said the implied deal price for Idea was well below the
stock’s closing price of 108.10 rupees on Friday. Vodafone shares were up 0.7
percent at 1415 GMT.
• Aditya Birla Group, the majority owner of Idea, will own 26 percent while other
shareholders will own the remaining 28.9 percent. Aditya Birla and Vodafone
eventually aim to own an equal share of the joint venture, with a combined
enterprise value of $23.2 billion.

10. Thank You