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Idea, Vodafone India merger throw huge challenge at Bharti Airtel, Reliance Jio

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Mumbai: To challenge the dominance of Bharti Airtel and take on the assertive behavior of Mukesh Ambani’s Reliance Jio, India’s two leading telecom operators, Idea Cellular and Vodafone India, have decided to merge. This will create the biggest telecom behemoth in India that will leave Bharti Airtel’s complete dominance of the market in the country.

Reports suggest that Vodafone is expected to hold a lion’s share in the newly formed entity. The merger has been finalized and approved by the two companies.

But apparently the merger is a long process and it is going to take more than a year to complete all the formalities. An Indian Express report claims that promoters of both the telecom operators will have the right to nominate three directors each. Idea will have its nominee as chairman while CFO will be from Vodafone’s nominee. Both CEO and COO will be a joint decision taken by both parties.

Idea Vodafone merger in numbers

It has also been decided by the two companies that business of VIL and VMSL, excluding VIL’s investment in Indus Towers, international network assets and IT platforms, will be part of the newly formed entity. On amalgamation of VMSL becoming effective, the company shall issue shares to VIL equal to 47 percent of post issue paid-up capital.

Promoters of Idea have right to buy up to 9.5 per cent additional stake from Vodafone under agreed mechanism with view of equalising shareholdings over time. Until equalisation is achieved, voting rights of additional shares held by Vodafone will be restricted and votes will be exercised jointly.
On the other hand, the new telecom behemoth with more than 400 million user base in the country will be jointly controlled by Vodafone & Aditya Birla Group. It is now clear from the statement of the two companies that Vodafone will deconsolidate Vodafone India immediately. Transaction expected to be accretive to Vodafone’s cash flow from the first full year post completion. Board of combined entity will comprise 12 directors including three directors appointed by Vodafone and Aditya Birla Group.

A statement by Kumar Mangalam Birla, Chairman, Aditya Birla Group said, “The Aditya Birla Group will then own 26 per cent and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time…For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strength”.

On the other hand Vittorio Colao, Chief Executive, Vodafone Group Plc while confirming the merger said, “The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India…The combined company will have the scale required to ensue sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life of every Indian”.

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