Global telecom giant Vodafone today said it is in discussion to merge its India mobile business with Aditya Birla group's Idea Cellular -- a move that would create the largest telecom entity to take on rivals such as Airtel and Reliance Jio.
"Vodafone confirms that it is in discussions with the Aditya Birla group about an all-share merger of Vodafone India (excluding Vodafone's 42 per cent stake in Indus Towers) and Idea," Vodafone said in a statement.
Any merger will be effected through issuance of new shares in Idea to Vodafone and would result in de-consolidation of Vodafone India, it added.
A Vodafone-Idea combined entity would have 43 per cent revenue market share as against the 33 per cent of Bharti Airtel currently and 13 per cent for Reliance Jio by 2018-19, a CLSA report had said.
Vodafone did not share the details of the potential deal, saying, "there is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction".
While Bharti Airtel is the largest telecom operator in India with 263.35 million mobile subscribers, Vodafone has 202.79 million users and Idea Cellular 187.68 million.
With 32.84 per cent, Bharti Airtel has the maximum market share, but the combined entity of Vodafone India and Idea will command 43 per cent, say analysts.
"Our analysis of a potential merger of Vodafone India with Idea Cellular reveals that such a mega deal would change the industry order," CLSA had said.
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In a BSE filing, Idea Cellular said it constantly evaluates various opportunities to enhance stakeholders' value.
"As part of the exercise, the company has been in preliminary discussions with Vodafone," it said.
Idea emphasised that the fundamental premise of preliminary discussion is based on "equal rights" between Aditya Birla Group and Vodafone in the combined entity.
"In view of the fact that the discussion is at preliminary stage, the company is not in a position to share any further details... Further there is no certainty that the discussion with them will result in any agreement," the company said.
Meanwhile, Vodafone sources said that the potential merger talk is all about remaining fully invested in the country and creating value through a larger enterprise.
The merger, if it goes through, would create a new leader in the Indian mobile and data industry challenging rivals Bharti Airtel and Jio and hence further intensifying competition.
"As per our analysis, a merger with Idea Cellular would be the best fit for Vodafone India, particularly as the two operators' operational strengths are complementary. Moreover, Vodafone India's potential merger with Idea Cellular would also pave the way for a backdoor listing of its business without going through an IPO process," CLSA had said in its mid-January note on the potential mega merger.
The merger would help Vodafone India improve its positioning in the mass market while Idea Cellular would gain from Vodafone's strength in metro circles, it had said.
"Not only would the combined entity become the industry leader but also a strong competitor in the data market with 3G spectrum across India and the highest 4G spectrum in the 1800 MHz band, enabling sufficient capacity spectrum," CLSA had said.
