VODAFONE - IDEA MERGER ANALYSIS

By Group 3: Kartik (P16020), Rishi (P16028), Nimesh (P16034), Abhishek (P16039), Dhruv (P16052)

Introduction to the Deal

The mobile revolution has taken a drastic turn post the entry of Reliance Jio. Many telecom
firms have faced the backlash due to predatory pricing. In such scenario, during the past year,
major restricting has happened in the telecom industry. Off late Tata Teleservices has also
started consumer telecom merger with Airtel. The one merger that has been talked about is the
Vodafone Idea merger.

The merger would create a telecom operator worth more than $23 billion with a 35 percent
market share and 41 percent revenue market share. It is said to be completed by 2018.

Outlines of the Transaction

1) Vodafone will initially hold a 50% stake in the combined entity

2) Aditya Birla Group would hold 21.1% stake in the combined entity
3) Later, Vodafone will transfer 4.9 percent of its stake at a pre-agreed price of Rs 109 per
share to ABG
4) Kumar Mangalam Birla would be the CMD of the entity
5) ABG can pick up another stake of 9.5 percent from Vodafone to increase shareholdings
over a period
6) Call option exists with ABG to increase stake to 35.5% at a pre-agreed price of Rs 130
7) The Birlas also have the option of picking up the stake from the market in the fourth year.
If they do not exercise that option of raising their stake, then Vodafone has the option of
reducing its stake to equalise ownership with that of AB Group.
8) Idea will contribute all its assets along with standalone towers with 15.4k tenancies. It
would also contribute its 11.15% stake in Indus towers whereas Vodafone will contribute
its subsidiary- Vodafone India along with its standalone towers with 15.4k tenancies. But
wont include its 42 percent stake in Indus towers.
9) Enterprise valuation of Vodafone india would be $12.4 bn as compared to $10.8 bn for that
of Idea.
VODAFONE - IDEA MERGER ANALYSIS

By Group 3: Kartik (P16020), Rishi (P16028), Nimesh (P16034), Abhishek (P16039), Dhruv (P16052)

Control Structure

1) Kumar Mangalam Birla would be CMD of Entity

2) Vodafone and Idea would have joint control over appointment for COO and CEO
3) Vodafone has the right to appoint the Chief Financial Officer

Synergies of the merger

1) Within 4 years run rate costs and capex synergies are expected to reach $2.1 bn
2) Total NPV of the synergies has a potential of about $10.1 billion
3) Lower capex due to redeployment of overlapping equipment
4) Lower Maintenance costs, savings in energy costs, rationalising network infrastructure
and higher operational efficiencies
5) Streamlining nationwide IT systems to evolve a single IT system.
6) Higher spectrum availability and larger access network
7) Lower administrative and general costs

Dis-synergies of the Deal

1) May have to surrender spectrum

The combined entity would hit revenue market share, subscriber market share and
spectrum caps in at least five of the total 22 circles.

Thus to stay below the cap the entity may need to surrender some spectrum.

Surrendering spectrum would result in a revenue loss of Rs 6000 crore

Excess spectrum would have to be sold to competitors like Airtel, with no guarantee
that it would get spectrum sale prices for the same.

2) Revenue market share of the combine should not be higher than 50 percent in any circle.
In 6 of the circles, market share would be greater than 50 percent. Thus to get within
regulations, they would have to cede a particular amount. Experts say, the entity may
have to face a revenue loss of Rs 180 crore
This is equivalent to about 8 percent of overall revenue.

3) Vodafone s taxation woes and other liabilities

The entity is bound to get Vodafones liability of about $2.5 billion

VODAFONE - IDEA MERGER ANALYSIS

By Group 3: Kartik (P16020), Rishi (P16028), Nimesh (P16034), Abhishek (P16039), Dhruv (P16052)
Retrospective taxation by govt. may impose liabilities.
Payment of one time fee for spectrum liberalisation Rs 5000 crores

Strategy of both the parties

Both the parties have strategically decided for a Merger aiming at the following objectives

1) Pan India expansion of wireless broadband services on 4G / 5G technologies.

2) Sufficient spectrum availability to compete with major operators of the world.
3) Would be able to build substantial mobile data capacity utilising largest broadband
spectrum portfolio
4) Pan India expansion would support introduction of digital content and IOT services

Financing of the Transaction

Merger would be funded by promoter companies like the Pilani Investments