See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/337415348

A Post-Merger Analysis of Vodafone-Idea Ltd

Conference Paper · November 2019

CITATIONS READS

0 983

2 authors, including:

Ashok Panigrahi
Narsee Monjee Institute of Management Studies
60 PUBLICATIONS   193 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Identifying Elements of Trust Communication and Its Impact on Purchase of Patanjali Ayurveda Products in Shirpur, Maharashtra. View project

All content following this page was uploaded by Ashok Panigrahi on 29 November 2019.

The user has requested enhancement of the downloaded file.

Kalinsa Universitv

A Post-Merger Analysis of Vodafone-Idea Ltd.

""' Dr.AshokKumar Panigrahi
NMIMS University. Dr. Ambedkar Institute of Management Studies & Re>e .
Deekshabhoomi,NAGPLIR. (M S )
Shirpur, Maharashtra.
DAIMSR"Nagpur.
0 8 8 88 8 I 0975 ashok.panigrahi@nmims. edu
09 0 49 9'7 53 6 5 v ljayj o sltt62 @,gma il. c o nr

Abstract
Vodafone and Idea announced their merger in20l'7, which made a huge impact in the Indian telecom sectc r - '
-
major consequence of Jio's cruising dominance in the industry which backed other major players to take pre:.r: --i

tomaintaintheirstandintheIndiantelecommarket.VodafoneIndiawasthesecondlargestplayeroftheInd.:: l.,,
IndustryintermsofsubscriberbasewhileldeaCellularLimitedhasthethirdlargestsubscriberbaseinlndia l::: -.
was a subsidiary of Aditya Birla Group. This merger did not only create a telecom giant but has had u'ide-rar"-r.:ra
*:
-
tions for the industry services, the staffand consumers as well as it pushed more merger moves in the telecom s e :: - .'
paper, the current scenario ofIndian telecom market is also analyzed to understand where Vodafone-Idea s:e:: - :: i

Key Words: Mergeq Vodafone, Idea, Telecom Industry'

Introduction
Amergerisadealcarriedoutbytwoormorecompaniesbygroupingitintoasinglenewentity.Thereari..Er.--:'
of mergers and also several reasons as to why companies resort to merging with their competitors. Merser-t :rtr -:.-:
carried out to expand a company's reach, diversifu their portfolio, or gain market share. This is all done to up h: ::: : =
shareholders in the company and create value. There can also be a merger, where companies operating in sarL: r: : -
sector become one entity which is called as horizontal merger. It is basically a piece of consolidation benvee n --,- :-:: .
providing the same services orproducts. This kind of mergers are commonly observed in organization lvith t'e.'r' er :.--i
their objective is to make a larger business with larger economies of scale and market share, since there t: , ::
competition that exists between these fewer companies.
On 20th March, 2017 Board of Directors of Vodafone India and Idea jointly announced the merger benr een :h:::
approvalofthemergerwasgivenbyDepartmentofTelecommunicationinJuly20ls.TheNationalCompany La"'- T:.
gave the final approval to the Vodafone-Idea merger on August 30, 2018. On 31st August 2018, the merger \\'3S it-:.nf
and the Board of Directors decided to name their newly merged entity as Vodafone Idea Ltd. The Vodafone-Idea .
headed by Kumar Mangalam Birla as the Chairman, with CEO of the company as Balesh Sharma. On analysis of marke :
of revenue and subscribers, the merger made this entity the largest company in Indian telecom sector. Under the terms
agreement, the Vodafone's stake is 45.2Yo of the total market shares in the merged entiry the Aditya Birla Group stake :,
and the rest ofthe shares are held by the public. It was later decided that both the brands will continue to operate unde:
ongoing brand names.
Vodafone Idea Limited became a Pan-Indian integrated GSM operator providing 2G, 3G & 4G mobile services under
names of Vodafone and Idea. Vodafone Idea merger created a wave across the telecom industry of India' It u'as a ,
reaction to the competition of Reliance Jio and Airtel. This gave way to a string of mergers and acquisitions b1' th<
companies to hold their position in the telecom sector. The merger also leads to a conversion of multiple telecom s'

provider industry into a three-fold competition between Vodafone-Idea Ltd, Airtel and Reliance Jio.
Objective of the Analysis
L To examine the merger between Vodafone India and Idea and the specifics of their deal'
2.To analyze the impact of the merger on the Indian Telecom industry"

OVER THE HORIZON: INTROSPECTING THE SELF IN FLUX o26

 Specifics about the Merger
The merger includes different percentage
ofshares for Vodafone and Idea while the rest
ers'Approximately'vodafonewillhave +s.t"l"ofsharesofjointventureuft"rpu.ringtheownership belongs to the public sharehold-
Group for 3'900 crore post the completion of4.9%otoAdityaBirla
of merger. The requisites for the merger was that,
the tele com service providers for the it required approval from both
appointment of cEo una coo. The chairman
Mangalam Birla and chief financiat otic". of the merged entity would be Kumar
would be appointed uv voauron". From a total
members each would be nominated by the promoters of 1-2 -e-b"r. of the Board, 3
and rest of the members would be independent.
Idea Cellular Ltd made Vodafone India and
within 24 months. on 31st August 2018 the merser
completed and thejoint filTff:1ff:ff,,l"+:Jh;"iffi was

Graph l: Financial Consolidation

,Af,&, V**AfSF*fi *r:d *omb$nesj ide* & V*daf*ne

w t*sn a V*3A}:*iCH ffi ***tbin*d id*e & r,/ed*fajr*

5t:0

ff*t $ehi il;p*li T*ta; gp*ctrum if tri*$t;ll*tl?

P*rlieulars

Source : mnacritique.mergersindia.com
This transaction required various approvals
from government authorities including SEBI,
Bank of India among others' The Depaiment dept. of relecom and Reserve
of Tellco--,rni"uii*rlb"rl has given the green
India and Idea, the largest Merger and Acquisition signal for the merger of
"bdafone agreement in the sector, which has displaced
:"p position after over 15 years' The approval Bharti Airtel from
conditions, *hi"h *"." given over a year afterthe
:"unced in March 2017 which includJan advance agreement, were an-
payment of Rs 7,268 crore. The demand
is split between a bank
ilHT::"*13f,fi;:[Jifi:]Xll:111il:::""?ffiu.'toro""-ti*espectrumchargesandcashorRs 3,e26croreb,v
PromotersAditya Birla Group infused Rs 3,250
crore in Idea cellular, which separately raised
: 'anned merger with vodafone India' Followinc Rs 3,000 crore ahead of a
tl: equity infusio., if ri"u', promoters, iheir stake in India,s third large st
::lecom operator rose to 47
'2%io from 42.4Yorroi'' Id"u contributed its assets which
:enancies and a stake in Indus towers included standalone towers with 15,400
Ltd of ll -5%. The proposed capital raising by ldea,
:: American Tower corp' and the potential the sale of its standalone towers
sale of its I l.l5%'ttut" ininars Towers
:apital resources. Ltd had augmented the firm,s long-term

OVER THE HORIZoN: INTROSPECTING THE

SELF IN FLUX o27
 L*nding lndien M*bil* *p*r*t*r
ffi t'r,:d*i*n*iri** $ i.irt*l fti*;:*r ft? J'*
r 50f

guh:r i*:n] *pllcsl

*pllcat lilhr*
Fih,'* Cabl* t'tlills *r*adb*n{
Csbl* i'rl**s slnas**ns sFectttirtl
sFectt{Jrt't lfi"nflzl
ih'4i"izJ
niy{ j

Farlie ulars

Graph 2: Leading Indian Mobile Operators

Source: mnacritique.mergersindia.com

The entry of Reliance Jio Infocomm Ltd in September2016,with free seryices for almost seven months and cheap L:r
had eroded margins and impacted the revenue of rivals. The contribution of Vodafone will be Vodafone India altrn5"
standalone towers with 15,400 tenancies without including 11.5% stake in Indus Towers. According to the agr:e:
between Idea and Vodafone, Vodafone India's funding and contribution of net debt to the merger will depend upon nel
of Idea Cellular upon completion of merger. Vodafone will contribute more amount of net debt, about Rs 2,480 cror"e rh:r-
at the completion of the merger. Post termination of both companies, the combined entity will be a
joint venrure b::;
Vodafone and Idea, which will account for the under equity method, controlled by bothAditya Birla Group and \iria:
Idea promoters hold the rights to acquire 9.5% additional stake fromVodafone under agreed dealto equalize sharehclj
over time as per the following proposition
Vodafone: 45.1% - 9.5%: 3 5.6%
Idea: 260/o + 95% : 35.6%

Post Adig.a Growg gost Aditf i Tcttl

Acquiritiot rr$ r!€rg€r Acgrisition from
from l,,"adafont 1:ndafon*

Table I : Shareholding Change

Source: mnacritique.mergersindia.com

Reasons for the Merger

The main reason for the Vodafone-Idea merger was to tackle the rising dominance of Reliance Jio in the Indian Tel'
sector. This will result in a brutal price war between all the major companies in this sector.
While merging companies are typically quite confident about their synergy benefits, most analysts agree thr
Vodafone-Idea merger holds the potential for significant cost savings. With a larger scale and elimination of duplicate '
margins can rise substantially.

OVER THE HORIZON: INTROSPECTING THE SELF TN FLUX o28

 Kalinga Universitv

The combined entify became the largest cellular services operator in prominent
circles. In a couple of circles, it will
upstage BhartiAirtel as the number one operatoq while in some other
circles, it will graduate to a strong No. 2. It remains to
be seen that if the combined entify will retain a half-hearted presence
in the relatively smaller circles, or whether it will up the
ante and aim for a strong Pan-India focus.
The spectrum of Idea in two circles while vodafone India in seven circles,
whose permits are valid till 2021-22,is together
valued at around Rs 12,000 cr as per the last auction price. These permits
with Vodafone India and Idea are not in common
circles hence there could be potential spectrum capital expenditure synergies
between the companies.
Beforethemerger,amarketsharesofl8.l6%ofvodafonelndiawith20,46,g0,000customersandamarketshare
of16.g%o
of Idea CellularLtd with 19,05,10,000 customers was suleyed" The merger
of Vodafone India and Idea Cellular has boosted
the market share to 35% which has made it the country's largest telecom
operation leaving the Bharti Airtel off its top
position.
Impact of Marger
This merger has caused more mergers and acquisitions of other telecom companies.
The assets of Telenor India and
Reliance Communication were bought by Bharti Airtel. Tata Teleservices
customers have started migrating to the Airtel
network under an Intra circle Roaming (ICR) anang€ment. various initiatives
have been taken by th! merler entity like
renewal of price due to troublesome entry of Reliance Jio which caused
some serious imbalance. The huge number of
subscriber base in India has made India the fastest growing market and
with the merging of huge telecom players it will
endow the telecom sector with health and life. The merger provided support
r'bdafone India and
in ou.rcornirrg the debt of Idea cellular and
large sum of credit will be infused in the joint venture. Impact of mergei could
be observed in various
;en'ice providers in terms of quality of service in telecom sector. This impact
could aiso be observed on the savings,
'r nergies and the spectrum in rapid growth. Cost and capex synergies is created for both companies which is estimated to
:e around l0$ billion after integration cost. The major cost and .yn..gies would be around network infrastructure,
iavings in energy costs, operational efficiencies, service centres, "up"*
lower maintenance expenses. The merger has reduced the
: peration cost incurred to about 60% of the total cost which
will aid in improving the q.ruhty and performance of the service
:rovided by the company.
Subscrlber Merket Shere

\.irtBt*n+ i*da

Chart l: SubscriberMarket Share

-{fter the merger, Bharti Airtel will be left behind by the Vodafone Idea Ltd and the merged
entity will acquire the top
r': silion in Indian telecom industry with a revenue market share of40olo
with respect t oBha/1.lirtetlzN.
\\rith the disruptive entry of Reliance Jio, it was the beginning of price
war in the Indian telecom industry. Reliance Jio
:rade an announcement that for the start of Jio telecom services on
27th Decembe r 2015 at minimum rates with a launch offer
' : :'irst quarter free for all the consumers. Since the merged entity had enough resources
it resulted in a resource consolida-
r ::r u'hich ultimately brought a greater benefit to consumer.

\\'ith very few companies remaining in the sector, there was a higher chance
of stability of prices. Analysts are predicting
: :::arket correction of telecom pricing and the country may see the companies teaming
op to i.r"r.ure the prices of all
*-' ices' With only 4 major players remaining: Idea-Vodafone, Airtel, BSNL and rio
-
:
lnirtel
has merged Aircel, bought
enor, and may merge with Tata), rates of these services would be a something
which can be arbitrated easily.
\s big agencies offer better consumer experience, it cannot come at a cheap price. If we talk about the telecom market,

OVER THE HORIZON: INTROSPECTING THE SELF IN FLUX o29

Kalinga University

then it is better for the industry as a whole. The current debt of the merged entity is at a staggering Rs 1.07 Lakh cr, and Idea
has already announced that they would be conserving close to Rs 14,000 crore per year from savings, due to united
execution and shared usage of infrastructure. Lower affears mean the companies can now focus more on in improving the
existing infrastructure, which means a better network quality for the consumers.

: 3tir4ti liF$rtnnn *ihnn: {in i!1.il2i

-
l{r0(lr' - " ""-^*'*'l '***'
t5$ - ---'1 '
,----.,,..-""..--+ .-.,. ..-.
j
90* I
.,..,.,,,,,,.,,.,,.,,.,................t....,...................
*5{i I

f*fi -f
?5n
7t)lt
fi5*
$o+
55t'
50{}
.t5$
4{J*
.15{}
3ns
"t <n
ttlfi
l5$
:0*
$tl

-l-F
The Vodafone Idea merger resulted in a duplication of resources across the country which required job cuts too. The
combined entity had to lay offtheir employees on a huge scale, as Chairman of the new merger, Kumar Mangalam Birla, had
already pointed towards it. When the main objective of both the telecom firms is to reduce their indebtedness via merger,
then the cut downs were pretty much expected. Although the CEO of Vodafone hadn't hinted towards layoffs, but analysts
predicted that 5-l0oh of the labor pool from the merged entity may be asked to resign.
The merger lead to pooling of vital resources and infrastructure, which inevitably lead to a better service quality and
customer experience. This merged entity has also reduced financial challenges, which encouraged it to invest more on
quality of service.

Market Revenue Share

'i :':i
AC$*r

Chart 2: Market Revenue Share

OVER THE HORIZON: INTROSPECTING THE Sf,LF IN FLUX e30

Kelinsa Unir-ersin

The Expectations
The merger befween Idea and Vodafone India has made them a leading player. As per the benefits that arise from
T-enasement synergies is Rs 670 billion for cost and capital expenditure & Rs 140 billion operating expenses by the 4th year.
l: also decreased the debt on the Vodafone-Idea Ltd with sale of Towers Assets. The merger will also lead to cost savings
::d asset monetization opporlunities aiding financial performance. The big question to be answered is whether the com-
:an1' rvill be able to monetize the surplus spectrum and able to stream the money towards newer technologies and better
i:n ices. The big advantage to the promoters ofAditya group is that the consolidated with Vodafone in this pricing war with
Reliance Jio and Airtel at the same time have rights to gradually increase the stake in stages to become equal partners.
.rccording to the current circumstances, there is little to no gain to the public shareholders and they can only hope that they
,r ill be benefited with the merger in the long term.

Eimimishing rsinrns
Th* Vadaf*n*"ldea (*mbln*k Fbitda has fallen l* ah.{}ut * third of ttre Isv*ls at the time
$f rh* rnsrs*r snfi$r*rlcemeftr, arxd has made leverase fatiffi go hayr*ire.
ffil*gYe{}*"r* *
ffi f*fiklsgbdcre tar. fhrtd* nr..ragi* {rr o4}
W|"let debr {fl { crorcJ Il.kr debt/g$td#
de${#ciatio.1 **d'ntefe$t.
sr"t**ri:*t mn {R{gfit'hand s{rh} itr{r"trad s€a*} {|n }eo attiflr*c}
{ix f erqs*}
??sffi !!i 16
ffi* 3S 1.Ot,900 t.*9"?0S i
w€ W ffirl

!*
XW ffi'ffi:
qffiffiw:
,sr}"S€{1*rg
Pte+{rerfifr
*rHloryfi*rl}enl
M?*1?-
,eslml*
f€olficr*sr
Aer"jLlll&l$
mruafircd"
a$no{n!e€*$G*t
nffi i*,He ffi#
ar"ra{sleefiRflt r&*t{r!€{83f sBF*"{r*H,n*nt
.lM F#w?{{sts$tiffiet{€
Suqtrw: ftr.rlptrlif$" Jh! F,inswbl, Mirrt rx*a*eh

The Reality The great Indian Telecom Battle

-
Not very long ago, India had a booming telecom industry with a dozen operators battling for market share in this billion
user market.But three years ago, Reliance Jio entered the sector which rock-bottom tariffs. A brutal tariffwar started, which
kicked several operators out of the race to provide wireless services and left many with battle scars. Today, just two other
private operators, BhartiAirtel and Vodafone Idea are left to compete with Jio.

}IET MOBILT SUBSCRIBTR ADDITIOTT

rAirtel flVodafonelndia sjio rOthers {inmn}

OVER THE HORIZON: INTROSPECTL\G THE SELF IN FLUX r31

 Kalinga Universitv

Vodafone Idea retains top spot in tetms of subscriber base.But if onecompares India's number one and number tr
players on metrics like profitability, revenue, 4G data users and the groMh trend of the operators' average revenue perus
the results that emerge boggle the mind.For stalters, Vodafone Idea, with the largest user base, made a net loss of ?4,8
crores in the June quaftet while Jio made a profit of ?891 crores. Both companies have priced mobile services at almt
similar levels. To be sure, Vodafone Idea is in the midst of a merger integration exercise. The company beliel
that it is delivering on its stated strategy although the benefits are not yet visible in its topline. It also expe<
better financial performance going forward. But that depends on when tariffs improve in the market, and tl
call is clearly in Jio's hands.
References:
. https://en.wikipedia.orglwikWodafoneJdea Limited
. http s //mnacritique.mergersindia. com/idea-vodafone-telecom-merger/
:

. https://timesofindia.indiatimes.com/business/india-business/vodafone-idea-merger-india-gets-a-telecom-bel
mothL/articleshow/65 1 62 327 .cms
. https://www.livemint.com/Industry,4FluE25L2lhlQefpXlCiWKmJ/Idea-unveils-11-billion-fundraising-plz
ahead-o f-Vodafone. html
. https://telecom.economictimes.indiatimes.com,/news/idea-cellulars-board-approves-vodafone-idea-merg
57726148
. https //www.investopedia.com/terms/m/merger.asp
:

. https://wwwjagranjosh.com/articles/idea-and-vodafone-merger-a-saga-of-becoming-indias-largest-teleco
company-1490598696-1
. https //www. livemint. com/
:

. https://www.business-standard.com/article/companieslhere-s-why-vodafone-idea-losing-to-reliance-jio-on-sr
eral-fronts-l 1 9010301212 1.html

llr

OVERTHE HORIZON: INTROSPECTINGTHE SELFINFLUX o 32

View publication stats