Vodafone has confirmed that it is in discussions with the Aditya Birla Group about an all-share merger of Vodafone India and Idea Cellular. The potential deal would exclude Vodafone's 42 percent stake in Indus Towers, Vodafone said. The company also added that any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India.
Vodafone’s statement follows recent media speculation regarding a potential combination of Vodafone India and Idea Cellular. According to brokerage house CLSA, cited by the Economic Times, the combined entity would have 43 percent revenue share in the market by FY19 against 33 percent for the current market leader Airtel and 13 percent for newcomer Reliance Jio.
Industry watchers believe such as deal could boost the merged entity’s EBITDA by up to 30 percent, driven by savings on network and SG&A costs and a lower net debt-to-EBITDA ratio, at 3.3 times.
"The merger will help Vodafone India improve its position in the mass market, while Idea Cellular would gain from Vodafone’s strength in the metro circles. Finally, the merger would create a new leader in the mobile/data industry, challenging both Bharti Airtel and Reliance Jio and further intensify the competition," CLSA said.
