Vodafone Group will merge its Indian subsidiary with local competitor Idea Cellular within two years, Idea said on Monday. The British telecom company, Vodafone will own 45.1 percent of the joint venture in the company after the transfer of 4.9 percent of the stake to the Aditya Birla group for Rs 3,874 crores in cash, said Idea. The move is believed to be taken after the speed dominance of Reliance Jio in the telecom sector of the country.
The merger of these telecom giants will help them to stand in a better position to compete against the brutal price war. The merger plan was derived after the launch of Reliance Jio Infocomm which has put the mobile industry into turmoil. With the free voice calls and data services, Reliance Jio has forced other rivals to reduce their tariff rates. As per the shareholders’ agreement, the merged entity of Idea and Vodafone will be jointly controlled by Aditya Birla and Vodafone. Reliance Jio also has smartphone lineup named as LYF mobiles which has helped the company to gather more subscriber base.
The promoters of Vodafone and Idea will get the right to recommend three directors each, whereas Idea will have the sole right to appoint the chairman. Kumar Mangalam Birla will be the new chairman of the newly merged entity, PTI reported. The CFO of the company will be appointed by Vodafone. Furthermore, the promoters of Idea will have to own up to 9.5 percent of added stake from the British telecom company under the agreed mechanism.
The combined entity is expected to become the leading communication provider in India as per the company. It will have almost 400 million customers with 35 percent of market share and revenue market share of 41 percent, the statement added.
The confirmation of the merger ended after the months of Reliance Jio launch. The transactions made by the combined company will be subject to the necessary approvals from the concerned authorities such as Department of Telecom, RBI, and SEBI among others.
It’s worth mention that the announcement of merger resulted in shares rise of Idea as much as 14.25 percent. The shares in Idea increase almost four percent after the Vodafone-Idea merger announcement.