vodafone and idea post merger analysis

1. Piyush Toshniwal
BBA(B&F)
BBF-17009

2. OVERVIEW
• Introduction
• Type of Merger
• Product life cycle of both the companies
• Motives behind the merger
• Synergy
• Valuation methodology
• Conclusion

3. INTRODUCTION
• Vodafone: Vodafone India is a 100% subsidiary of Vodafone Group. It
commenced operations in 1994 when its predecessor Hutchison Telecom
acquired the cellular license for Mumbai. Brand Vodafone was launched
in India in September 2007, after Vodafone Plc. acquired a majority stake in
Hutchinson Essar in May 2007.
• Parent Organization: Vodafone
• Headquarters: Mumbai
• Revenue: 286,319 M (INR)

4. • Idea: Idea Cellular is a major mobile phone service operator in India and
ranked third in the country by subscriber numbers. It belongs to the Aditya
Birla Group, one of the three largest conglomerates in India. ... Nearly 20%
of Idea is also owned by the Axiata Group, a Malaysia telecom company.
• Parent: Aditya Birla Group, Axiata Group
• Headquarters: Mumbai
• Revenue: 105,832 M (INR)

5. TYPE OF MERGER
• The merger between Vodafone and Idea is a example of Horizontal
Merger.
• Horizontal Merger: When two firms operating in the same line of
business and catering to the same segment of customer or operating
at the same stage of industrial process merge together it is known
to be Horizontal type of merger. In simple words when two
competing firms merge together it is a horizontal merger.

6. PRODUCT LIFE CYCLE
• Both the companies in terms of life cycle were on the Growth Stage before
the entry of JIO .
• Currently both the companies post merger are looking for market
stabilisation which is maturity stage where they can defend the market share
and attain profit.
• The only way to win in this cut throat competition is:
 Match pricing to strong competitors.
 Build more intensive network and distribution.
 Diversify products and services.

7. MOTIVES BEHIND THE MERGER
• Reliance Jio was the main reason behind the merger of Vodafone and Idea
cellular, Idea and Vodafone individually operated 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%.
• Synergy Benefits to drive margins.

8. • Increased 3G/4G spectrum.
• Vodafone-Idea combine will be No.1 or No.2 strong

9. • Asset sales and synergy benefits to reduce leverage.
• Reduced Leverage and Higher margins can result in appreciation of equity.

10. SYNERGY BENEFITS
• The companies has already realised operational synergies of Rs.3000 crore
on annualised basis, out of the total 8400 crore.
• EBITDA Erosion of 19,701 crore.
• The companies together have 29% of Industry’s market share, which is more
than Airtel.
• The companies are hoping its 2G customers make the transition to 3G and
4G networks, thereby improving its average revenue per user, or ARPU. At
present, it has an ARPU of Rs 89. Airtel , the second largest player, has an
ARPU of Rs 104.
• The merger removed duplication of equipment. There is Rs 6,200 crore
worth broadband equipment that is available to build capacity.

11. VALUATION METHODOLOGY
• The valuation of Vodafone and Idea cellular was done computing the below
mentioned Valuation Methods:
 Net Asset Value Method.
 Comparable Companies Market Multiple Method.
 Market Price Method.
 Earnings Multiple Method.

12. CONCLUSION
• Reliance Jio is the threat to most of the companies in telecommunication
industry and to survive in this cut throat competition mergers and
acquisitions is seen taking place in industry.
• In the present case of Vodafone-idea it can be said that Synergy benefits
would gradually be achieved in coming years which will result in higher
profits and leverage is expected to reduce, hence resulting in value
addition to shareholder .
• As of now there is no gain to public shareholder, it is a loss making
company posting a loss of Rs 5003 crore loss in the December quarter.