Introduction
Mergers and acquisitions have proven to be an effective tool in business development. The telecommunications industry is one of the most profitable and fastest-growing sectors. The Indian telecom industry is the second largest in the world. India’s subscriber base is 11,83,51 million the internet user base is 604.21 million and the telecom sector generates a revenue of approximately 1,85,291 crores.
Combining businesses is not easy in India. There have been many mergers in the sector in recent years. Famous mergers and acquisitions in the industry include Vodafone and Hutchison Essar in 2007, Idea and Spice Telecom, Telenor and Unitech, Reliance, and Aircel, etc.
In 2017, Vodafone India and Idea Cellular announced that they had received approval from their respective boards of directors to merge through the Indian government. It was founded by India’s largest telecom company, surpassing Bharti Airtel and Reliance Jio.
Background of the Merger
Vodafone Group
Vodafone is a British multinational company. It is one of the largest telecommunications groups in the UK.
It provides services in more than 25 countries in the world, cooperates with mobile operators in 46 countries, and provides fixed broadband services in 18 markets, primarily in Europe, Africa, the Middle East, and Asia-Pacific.
Vodafone Group offers services such as voice, messaging, data, and fixed communications.
Vodafone Group has 534.5 million mobile subscribers and 19.9 million fixed-line subscribers as of 2018. This includes the company’s customers, including India and joint ventures.
Aditya Birla Group
Aditya Birla is an Indian multinational company headquartered in Mumbai.
It belongs to one of the Fortune 500 companies. The company operates in approximately 36 countries.
There are 120,000 employees.
The world’s number 1 in the field of aluminum rolling, viscose short Fiber, and carbon black. In India, Aditya Birla Group has leaders in various sectors such as fashion, lifestyle, viscose filament, grey cement, white cement, and concrete. In addition to the chlor-alkali sector, it is also the largest producer in life insurance and asset management.
Idea Cellular is the first diversified company under the Birla Group. It was founded in 1995.
Idea Cellular is India’s third-largest telecommunications company with a market share of 15.9%.
Reasons for the merger
Thanks to this merger, both companies benefit greatly. This is a horizontal merger between two major companies in the telecommunications industry. The value of the merger is $23 billion.
While the two companies have performed well individually, the rationale behind the merger is explained below:
Synergies
Both companies stated that the merger would be great. Savings of Rs 14,000 crore should be made every year. Savings come in the form of capital expenditures and operating costs.
Both companies’ EBITDA (earnings before interest, taxes, depreciation, and amortization) margins are around 30%. The price is lower than Bharti Airtel and Reliance Jio Infocomm Ltd.
Market Dominance
Personally, Vodafone India and Idea’s market share is very small compared to Bharti Airtel and new entrant Reliance Jio. Reliance Jio has taken the telecom industry by storm.
The combined company will increase 400 million users, 35% customer market and 40% business revenue.
Spectrum Sharing
Vodafone and Idea have 411 MHz and 316 MHz spectrum respectively. But on the other hand, Bharti Airtel and Reliance Jio have spectrum values of 860 MHz and 650 MHz respectively. Therefore, it becomes difficult for Vodafone and Idea to compete effectively in a single market.
The joint company is expected to take control of 728 MHz and thus make the most of the joint company, which ranks 2nd in India.
Joining ratio
The joining ratio is 1:1. This rate is based on an Idea price of $72.50 per unit. The business value of the program and Vodafone is INR 72,000,000, INR 82,000, and INR 80,000,000 respectively. The agreement provides for a lump sum payment of ₹3,300 crore to be paid under certain conditions.
Share Transfer
As per the agreement, Aditya Birla Group will hold 4.9% shares in the merged company. Vodafone has offered the stake at Rs 109 per share (INR 3,900 crore). This will increase Aditya Birla Group’s stake to 26% and Vodafone’s stake to 45.2%. 26 percent of the shares are given to other supporters of the creative team, while 24 percent are publicly traded.
Sell at market price
If after 3 years Aditya Birla Group fails to buy a single share which will promise 9.5% more equity capital then they will get a chance to buy a fair share at market price. To ensure equality of justice.
Sale to Third Party
If the Aditya Birla Group does not acquire Vodafone shares as equity capital after four years, the shares will be sold to third parties.
Net Debt
Vodafone contributes to a net debt of Rs. The joint venture contributed Rs 55,200 billion while the plan contributed Rs 55,200 billion. 52,700 kroner. 1 million TL was contributed to Vodafone’s expenses. 2,500 crores more than the bid.
Obstacles Encountered
The partner organization faces many challenges such as:
The organization exceeds the upper limit of at least six revenue circles from operating businesses, consumer businesses, and spectrum owners. < br>Based on the spectrum holding limit, the syndicate holds more than 25% stake in the states of Gujarat, Kerala, Maharashtra, Madhya Pradesh, and Western Uttar Pradesh.
Obtaining DoT (Contact List) Approval
DoT issues Guidelines for Mergers and Acquisitions (Transfer / Merger of Various Telephone Services / Authorization Instructions) under the Common License for Meeting, Planning, and Cooperation of Companies. For certain conditions that must be met to receive approval for telecommunications cooperation
The instructions state that organizations must surrender excess spectrum within one year after receiving the license. The system allows organizations to sell excess spectrum to different phone companies.
A joint venture can own up to 50% of the spectrum in each band. However, the challenge faced by the partner organization is that they exceed the spectrum limit in the 900MHz band. The impact on most businesses is that this should be reduced to a one-year deal limit.
Part of the merger
The idea of merging Vodafone has been welcomed by all parties involved, but it is not without its consequences.
Current Status of the merger between Vodafone and The Idea
In September 2020, the name was changed to Vodafone – The Idea. Using the theme, the company renamed itself “Vi”. The rebranding comes approximately two years after the merger but embodies the spirit of the merger. The company said in its statement that the name “Vi” should be pronounced as “we”. The delayed rebranding commemorates the merger’s failure. This marks the merger of the two companies, following three years of merger talks and completion.
The new branding attracted great attention on social media. The company said in a statement that the “Vi” sound reflects the origin and unity of the brand. Various “Vi” commercials have been released on digital platforms. However, the renewed announcement was made by the Supreme Court of India and directed Vodafone Idea to pay the government debt. Vodafone Idea has debts of around INR 504 billion. To pay off this debt, the company needs to raise $3.41 billion. The company plans to raise money through a combination of debt and equity. It received the approval of the board of directors. It also plans to participate in India’s 5G services.
Conclusion
It can be concluded that there is a need to unite to fight the competitive pricing policy taken by Reliance Jio. Due to this merger, the customer will get the best value because now every phone company will try to offer the best technology at the best price and provide better customer service to increase customer trust.
