Vodafone Group, based in Britain and Idea Cellular agreed Monday to merge their operations in India in a deal worth $23 billion, creating the biggest telecoms business in India after the entrance of a new player sparked a huge price war.
The new entity will have close to 400 million clients, which would overtake current leader Bharti Airtel to represent nearly 40% of the overall revenue of the second largest wireless services market in the world by number of users trailing just China.
The deal also underscores how the mobile industry in India is being transformed through the launch of Reliance Jio Infocomm’s network of mobile broadband last year.
Built for a cost of over $20 billion by the richest man in India Mukesh Ambani, Jio has been offering free services for a number of months. That forces the three largest operators in India – Bharti, Idea and Vodafone – to slash their prices and to accept a lower amount of profit.
That sparked a number of consolidations amongst others in the sector, and has now included Vodafone and Idea.
CEO of Vodafone Vittorio Colao said the two companies were quite complementary. He called Idea strong where Vodafone had weakness and Vodafone was strong in areas Idea was weaker.
Idea and Vodafone, which announced last January they were holding talks, must shed their spectrum in certain areas to meet rules in India, although the Vodafone CEO said it was small. This deal should close during 2018 said company officials.
Idea shares were up over 14.3% immediately following the news, but then fell by 9% as traders thought the implied price of the deal for Idea was far below the Friday’s close of the stock.
Shares of Vodafone remained flat in early London trading on Monday.
Idea announced that the deal price was 72.5 rupees a share but insisted that it was just for illustrative purposes and not an actual price. Shares of Idea closed on Friday at 108.10.
Vodafone, the second largest wireless operator in the world, will have 45.1% of the new entity after transferring close to 4.9% to Idea promotors or affiliates for a price of 38.74 billion rupees equal to $592 million in cash, said Idea.
Idea’s majority owner, Aditya Birla Group, will have a share of 26% while other shareholders will have the other 28.9% that remains. Vodafone and Aditya Birla will eventually look to own equal shares of the new entity with a value of approximately $23.2 billion in all.