DoT had conditionally approved the merger on July 9 on the condition that Vodafone and Idea pay the debt charges to government
Giving in to the demands of the Department of Telecommunications (DoT), Vodafone and Idea Cellular have reportedly carried out a joint payment of Rs 7,248.78 crore to the government body for merging their companies. It has also been reported that the merged entity made the payment ‘under protest’ and even has the option to challenge the dues asked by DoT in court later.
Payment made both in the form of bank guarantee and cash
According to reports, Idea Cellular has submitted Rs 3,322.44 crore of bank guarantee to DoT while Vodafone has paid Rs 3,926.34 crore in cash. While Vodafone has paid in cash towards market price for charges against holding non-auctioned waves, Kumar-Mangalam Birla owned Idea has given bank guarantee for one-time spectrum charges.
Speaking about the merger that was first announced by the telco giants in March 2017, an India spokesperson said, “Idea has submitted its compliance to the DoT’s conditional approval letter dated July 9, 2018, for the merger of Vodafone India Ltd and Vodafone Mobile Services Ltd with Idea Cellular Ltd, including the payment of Rs 3,926.34 crore (in cash) and bank guarantee of Rs 3,322.44 crore.”
DoT had given conditional approval to both the telco giants on July 9 on the condition that Rs 7,248.48 crore be paid to them regarding the charges against both the companies. Once the merger happens, the combined entity will become the largest telecom operator in India with worth US$ 23 billion business and 430 million mobile subscribers.
Vodafone to own 45.1 per cent shares in the combined entity
Once the merger is finally offered approval by DoT, Vodafone India is most likely to own 45.1 per cent of the stakes while Idea Shareholder and Aditya-Birla Group will own 28.9 and 26 per cent shares, respectively.
However, according to an agreed mechanism with the idea to equalise shares among the three companies over time, Aditya Birla can attain up to 9.5 per cent additional shares from Vodafone India. In fact, in four years, if Vodafone India still owns more shares than Aditya-Birla and Idea Shareholder, the former must sell down its shares to abide by the rule that both the telecom companies must have equal stakes in the combined entity. The shareholding is required to be equalised over the next five-year period.
Till shares are equal between both the companies, Vodafone will be restricted to their voting rights of the additional shares and voting will instead be conducted jointly under the terms of the shareholders’ agreement.
Three big players in the telecom space
Debt-ridden Vodafone and Idea have been facing competition from Reliance Jio and India’s largest telecom operator Bharti Airtel. Both Jio and Airtel have gained customers’ trust due to their 4G services, which have been a downside for both Vodafone and Idea. After the merger, the 4G spectrum of both the companies can offer up to 450 megabits per second broadband speed on mobile phones across 12 Indian industries, a presentation by Idea Cellular had stated.
Sanjay Bhasin, executive vice president, markets and corporate affairs at India Infoline Finance Limited (IIFL) believes that the payment made by Vodafone and Idea to DoT will make sure that the merger finally happens. He added: “It will have its own economies of scale, it will have a lot of tax benefits, claim much more depreciation, so the accounting positives will come in. Given that (Idea) stock was trading at an all-time low of Rs 50, this will be a shot in the arm in the near term.”
Speaking about the competition among Airtel who will lose its top position as the largest telecom in the country once the merger goes through, Reliance Jio and Vodafone-Idea, Bhasin said: “Now it will be a three-pronged attack with Jio, Airtel and Idea-Voda, where all three are capable of raising money. So, overall, the worst may be over and overtime as prices stabilise, you could see Idea-Vodafone also report better average revenue per user (ARPU) and profitability in the next three to six quarters. There is enough room for all three to survive. At Rs 350 for Bharti Airtel and Rs 50 for Idea, all the negatives have been priced in.”
Once the merger is finally cleared by DoT, Kumar Mangalam Birla will become the new non-executive chairman of the combined entity while Balesh Sharma will hold the position of the new chief executive officer (CEO). Akshaya Moondra, the financial officer of Idea will lead the financial operations of the merged company as its chief financial officer (CFO). The current deputy MD of Idea, Ambrish Jain will become the new chief operating officer (COO)
