Vodafone has an Idea

Intro / Deal Summary

On March 20th, 2017 Idea Cellular and Vodafone India announced their merger, whereby Idea cellular agreed to purchase Vodafone India for USD 12.6 billion. The deal has been the largest in the Technology, Media and Telecommunications sector in H1 2017 and will create the largest Indian telecommunications company with a valuation of USD 23 billion. The deal is expected to close in March 2018.


Company Descriptions

Idea Cellular (BSE: IDEA.BO; NSE: IDEA.NS; Market Cap USD 363.79 billion)

Idea Cellular is a listed Indian based mobile network operator based in Mumbai and a subsidiary of the Aditya Birla Group (ABG). The company operates through three segments: Mobility Services, International Long Distance, and Passive Infrastructure. It offers 2G, 3G, and 4G services and is one of the top three mobile operators in India, with an annual revenue more than USD 5 billion and a revenue market share of 19%. Today, Idea has nearly 200 million subscribers.


Vodafone India (NASDAQ: VOD; Market Cap USD 83.439 billion)

Vodafone India Limited is the Indian subsidiary of UK-based Vodafone Group Plc. The company offers prepaid, postpaid, data, roaming, mobile equipment, and integrated wireline communication services. This subsidiary was launched in 1995 and it is now the second largest mobile carrier with a subscriber base of 210 million. As for 2016, the company registered annual revenue of USD 6.5 billion and a revenue market share of 21%.



Industry Overview

The Indian telecommunication industry is the second-largest telecommunications market worldwide with over 1.2 billion subscribers. Moreover, India has the third-largest number of internet users, of which 7 out of 8 users access internet from their smartphones. Due to the country’s rising internet usage and increasing smartphone sales, the telecommunication industry is a top five employment opportunity generator, expecting to generate four million new jobs in the next five years.

In terms of market share, Bharti Airtel is currently the market leader with Vodafone India second and Idea Cellular third, followed by Jio Reliance Telecomm in fourth. Given the fast pace of industry changing developments including higher competitive pressures, the deal will allow Vodafone India and Idea Cellular to position themselves to face the new threat posed by Reliance Jio Infocomm, a LTE mobile network operator in India. It is a subsidiary of Reliance Industries, a conglomerate with businesses in the commodities and telecommunications sector. Reliance

Jio has been offering free services to customers and generally lower tariffs than competitors, putting to work a USD 25 billion investment by Reliance Industries. Therefore, its entrance has increased competitive pressures in the industry and created a push towards consolidation.

Deal Structure

The merger is expected to complete via a scheme of amalgamation, whereby Idea Cellular will acquire Vodafone India. The amalgamation scheme includes the integration of four different divisions: Mobility, Towers, Payment Banks, and Other Subsidiaries/Joint Ventures. Specifically, Idea will put on the table the entirety of its assets, including towers with 15.4 thousand tenancies and a 11.15% stake in Indus Towers, a company involved in constructing an operating telecom towers (Vodafone’s 42% stake is however excluded from the deal). On the other hand, Vodafone India will contribute its standalone towers with 15.8 thousand tenancies.

The implied enterprise value for Vodafone India is USD 12.66 billion, and that of Idea’s mobile business is USD 10.8 billion – that represents an EV/EBITDA multiple of 6.4x and 6.3x for Vodafone India and Idea’s mobile business respectively. Vodafone is expected to contribute USD 369 billion more net debt than Idea, which will issue its shares, representing a 50% stake to Vodafone India shareholders. A non-completion fee of USD 500 million has been secured in case the terms of the deal are not respected. Following the deal, Vodafone will deconsolidate Vodafone India, which then will be reported as a joint venture, thus reducing Vodafone’s debt. The deal will also be accretive to Vodafone.

In terms of ownership structure, Vodafone will transfer a 4.9% of its initial 50% stake to Aditya Birla Group, Idea’s parent company for USD 579 million cash. The resulting structure will be 45.1% owned by Vodafone, 26% by Aditya Birla Group and 28.9% by other shareholders.

Deal Rationale / Drivers of the Deal

As mentioned in the industry overview, one of the deal’s drivers were the increased competition and quest for scale, given the disruptive entrance of Reliance Jio Telecomm. The businesses are highly complementary, and therefore the consolidation is likely to lead to strong synergies and benefits to all stakeholders. It furthermore goes hand in hand with the Indian Government’s “Digital India Vision” – a government initiative with the goal to transform India into a digitally empowered society. The main synergy areas are Network & IT, Customer Service & Customer Acquisition, and General & Administrative areas. A major example for possible synergies are the avoidance of duplicative 4G network expansions and upgrades, and re-deployment of over-lapping equipment. In total, yearly run-rate cost and capex synergies are expected to be USD 2.1 million by the fourth year after consolidation. There might also be dis-synergies, e.g. liberalization costs on Vodafone India’s spectrum in 13 circles. Shareholders are likely to not only profit from synergies, but also from the fact that it is going to be an accretive transaction with an improved return on capital due to higher scale. Average revenue per user is also expected to increase because of higher adoption of broadband and digital services.


The merger will create the world’s second largest and India’s largest telecom firm, which will have almost 400 million customers and 41% revenue market share. Both brands will continue to invest in the businesses, giving them the possibility to accelerate 4G and 4G Plus, but also 5G. Being India’s largest telecom firm will also enable the combined entity to be a long term sustainable choice for consumers, offering innovative and attractively priced mobile services. “We are very complimentary. Idea is strong where Vodafone is weaker. Vodafone is strong where Idea is weaker.”, said Vittorio Colao, Vodafone Group Chief Executive. Idea has strong presence in rural and semi-urban areas, whereas Vodafone India is typically a leader in the major metros and urban market. This complementarity will improve the competitiveness of Vodafone-Idea which will soon lead in 10 circles post-merger, commanding 60% of the revenue of the industry. Besides having 2 million retailers and 19,000 stores, the companies together will have 27,000 2G sites, 189,000 3G and 4G sites, with a deep spectrum of portfolio across metros, urban, and rural areas.



Idea Cellular Limited has been advised by Axis Capital, Goldman Sachs, and J.P. Morgan. Advisors to Vodafone India Limited were Bank of America Merrill Lynch, Kotak Investment Banking, Morgan Stanley, Robey Warshaw, Rothschild, and UBS.


Sources and ReferencesMergermarket, Bloomberg, Investor presentations (Vodafone and Idea Cellular), Financial Times, Telecomlead.com, India Brand Equity Foundation


To contact the authors:
Anxhela Isaraj                                           anxhela.isaraj@studbocconi.it
Katharina Brenninkmeyer                     k.brenninkmeyer@gmail.com
Johnathan Riad                                        johnathan.riad@studbocconi.i
Florian Stüger (editor)                            florian.stuger@studbocconi.it