The document summarizes the merger between Vodafone India and Idea Cellular to create the largest telecom company in India. Some key points: - Vodafone India and Idea Cellular agreed to a merger in March 2017, with a 1:1 stock swap ratio and Vodafone holding 45.1% stake in the merged entity. - The merger was aimed at tackling competition from Reliance Jio and achieving cost savings. It created a company with over 300 million customers. - Estimated synergies included $10 billion in cost savings and $2.1 billion in savings by the fourth year post-merger from reduced costs and improved revenue per user.

1. Vodafone and Idea merger

2. Vodafone India (Voice Data Fone)
 Vodafone India was the second largest mobile
network operator in India by subscriber base, after
Airtel with a market share of 18.42%. It has
approximately 200 million customers.
 CEO: Sunil Sood
 Headquarters: Mumbai
 Revenue: 425 billion INR
 Founded: 1994
 Parent organization: Vodafone

3. Idea Cellular
 Idea cellular Idea Cellular is an Indian mobile network
operator based in Mumbai, Maharashtra. Idea is a
pan-India integrated GSM operator offering 2G,3G
and 4G mobile services. Idea was India’s third largest
mobile operator by subscriber base.
 CEO: Himanshu Kapania
 Headquarters: Santacruz, Mumbai
 Founded: 1995
 Revenue: 354 billion INR
 Parent organizations: Aditya Birla Group

4. Type Of Merger
 Both Vodafone and Idea operates in the same industry so they
adopted a horizontal method of merger.
 On 20th March 2017,Vodafone India and Idea cellular agreed to
merge and create the biggest telecom industry in India with a
customer base of over 394 billion.
 The main motive behind merger was Vodafone'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.

5. Life cycle of Idea
 Idea Cellular is a pan-India integrated wireless broadband operator
offering 2G 3G and 4G services and has its own National Long Distance
and International Long Distance operations and Internet service license.
 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.
 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. Reasons for Merger
 To tackle the rising dominance of Reliance Jio in the Indian Telecom sector.
 Merger holds the potential for significant cost savings which resulted in
increased market share and revenue.
 To provider better quality of service and to become countries largest
telecom operator.
 Helps to reduce the effect of tariff war that generally occurs in Telecom
market.
 The merger provided support in overcoming the debt of Idea cellular and
Vodafone India as large sum of credit will be infused in the joint venture.

7. Synergy benefits
 The synergies from the merger will reduce costs, and support company's
capex needs.
 The merger will remove duplication of equipment & improves its average
revenue per user, or ARPU. Currently, it has an ARPU of Rs 89.
 They have the largest share (of 46 percent) in the 2G market and that is a
ready opportunity for Vodafone Idea as they can up sell subscribers to 4g.
 The overall strategy will help stop the slide in market share. The strategy is
to improve upon the customer service by building capacity.

8. Impact of Merger
 Vodafone India and Idea cellular attempted to unlock synergies
across 22 circles aimed a bruising price war with 4G networks not yet
upto the market expectations could have limited success.
 They expected to extract synergy benefits worth rupees $10 billion in
net present value terms after integration of cost and spectrum
liberalization payments and an estimated $2.1 billion of savings by
the fourth year of completion.
 Entry of Jio has launched big price war. With its free service Jio has
upset the biggest players. The Vodafone-idea merged entity will only
add fuel to the fire, which will effect the tariff price.

9. Swap Ratio
 The two companies agreed to merge their operations with a swap ratio of
1:1,i.e every Idea share you hold will be exchanged with a new share in the
merged company. Thus, it is a merger of two equals.
 The 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.
 While Vodafone holds 45.1 percent of the shares in the merger, Idea would
be allowed to buy another 9.5 percent but at a cost of Rs. 130 per share in
the period spread over next four years.

10. Valuation and Model
 The merger between Vodafone and Idea will be executed through a stock
swap. 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.

11. Contd.
 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 four years.
 The valuation of the merged Vodafone India-Idea Cellular 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.

12. Vodafone Idea launches cashback offer for online
recharge done for other customers
 Vodafone Idea said it will offer cashback to its prepaid subscribers, under
“RechargeforGood initiative”, who do online recharge for other
customers of the company.
 "The program enables every Vodafone and Idea customer to recharge
for a friend, family or anyone who doesn't know how to recharge online
or doesn't have access to the internet. This good deed will be rewarded
with a cashback of up to 6 per cent on recharges done by an existing
Vodafone or Idea customer for someone else through My Vodafone App
or My Idea App," the company said in a statement.
 The #RechargeforGood offer goes live on April 9, 2020 for Vodafone
customers and on April 10 for Idea customers. The offer will be valid till
April 30, 2020.

13. Gayathri Sagar
BBA(Banking & Finance)