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Idea, Vodafone to stay separate brands

Post merger, Vodafone will own 45.1%, Idea 26%, and public shareholders the remaining; Birla to chair merged entity

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Kumar Mangalam Birla, chairman of Aditya Birla Group and Idea Cellular Ltd and Vodafone Group CEO Vittorio Colao during a news conference in Mumbai on Monday.
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Two months after the news first surfaced on the potential merger between Aditya Birla Group-led Idea Cellular and British multinational telecommunications major Vodafone, the final board nod came on Monday with a surprise element. For one, both the brands will continue to operate and leverage under the merged entity, said Vodafone Group Plc CEO Vittorio Colao.

"We have six circles, wherein we exceed the number of customers. As soon as Jio starts charging, we'll see what the real market share is. We have one year after completion to reach that (revenue) number," Colao said.

Kumar Mangalam Birla, chairman of Aditya Birla Group and Idea Cellular Ltd, will be the chairman of the merged entity as well. "The transaction will be funded by promoters, and not by Grasim or any other listed companies," said Birla.

Idea's merger with Vodafone's India operations, which is likely to be completed in 2018, will lead to creating the country's largest mobile operator, with almost 400 million customers, 35% customer market share and 41% revenue market share. Currently, Vodafone enjoys market share of 18.16% with 204.68 million customers. Idea has 16.9 per cent with 190.51 million customers as of December 2016, according to Trai data.

Both the companies will have equal stakes in the merged entity over a period of time. Vodafone will own 45.1% in the new company after transferring 4.9% to the Aditya Birla group for Rs 3,874 crore in cash concurrent with completion of the merger. Idea will hold 26% of the combined entity while the rest will be owned by public shareholders.

The all-share merger for both partners excludes Vodafone's 42% stake in Indus Towers.

"The implied enterprise valuation for Vodafone India is Rs 82,800 crore and that of Idea Cellular stands at Rs 72,200 crore, " says an exchange filing by Idea.

The combined venture will account for over 25% of the allocated spectrum and will have to sell about 1% (worth Rs 5,400 crore) to comply with spectrum cap norms. The excess airwaves will either be sold or returned to the government if they can't find a buyer, Colao said.

The companies had a net debt of Rs 1.07 trillion as of December 2016.

In the debt-ridden telecom industry, consolidation has become a new norm. Recently, Bharti Airtel agreed to buy India assets of Telenor. Even Tata Teleservices is reported to be negotiating to join hands with the merged RCom-Aircel and MTS entity.

According to a GSMA report, consolidation in India's telecom sector, which employs 2.2 million people directly and 1.8 million indirectly, may lead to shedding off nearly a third of these jobs on the back of duplication of resources across the country.

However, Birla was of the view that there wouldn't be a significant downsizing post the deal.

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