The telecom industry in India is in for a major revamp. Kumar Mangalam Birla’s Idea and Vodafone India have decided to merge their operations, in turn, creating the country’s biggest telecommunications company. This spot was earlier held by Bharti Airtel by virtue of the largest number of subscribers in its kitty. The new entity will be valued at 1.55 lakh crore and will be the world’s second largest telecom company after China Mobile.
Vodafone and Idea, after their merger will have around 300 million subscribers. This huge number will benefit them and help them compete with Reliance Jio which has disrupted the telecom industry with its free internet and free calls offers.
The deal will be brought upon by Idea Cellular gradually raising its stake and Vodafone reducing its share, hence moving towards an equal stake by both the companies. To start the deal, Aditya Birla group which owns Idea will take its stake in the joint entity to 26% by acquiring 4.9% from Vodafone. This will cost Idea a total of Rs. 3,874 crore at Rs. 108 per share. Idea can also buy 9.5 percent stake at Rs. 130 per share or the prevailing market price at that time over a period of four years.
Kumar Mangalam Birla will be the chairman of the new entity, while the chief financial officer will be named by Vodafone India. The CEO and operations head will be chosen by mutual discussions between the companies. The names are expected to be finalized before the merger is closed, that is in 24 months.
Both the brands will continue to function as independent entities in India. The fact that Idea is stronger in rural and semi-urban areas while Vodafone has a hold over urban areas will enhance their competitiveness and help them provide better services to their users. Mergers are the current trend in the telecom industry. Aircel, MTS and Reliance Communications are also working towards merging their businesses while Bharti Airtel made a recent announcement that it has decided to take over Telenor’s Indian operations.