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  • 4 Things to know about the Idea-Vodafone Merger

    Mergers and acquisitions move markets. The stock market was abuzz with a rumour initially. Then came the big announcement. Days later, telecom giants--Idea and Vodafone--announced details of the merger between the two companies to create the biggest telecom company in India. While the announcement created an interest among investors, details of the deal announced on March 20, 2017, resulted in a sharp fall in the Ideal Cellular share price.

    Click here to read more about the improved outlook of the telcos

    Here’s everything you need to know about the merger:

  • Why this is a big deal

    Vodafone India and Idea Cellular decided to have a merger of equals. Vodafone and the Aditya Birla Group will have a joint control of this combined company. Once you combine the Vodafone and idea customers, the merged entity could be the biggest telecom company in India. It would have nearly 40 crore customers, 35% customer market share and 41% revenue market share. Months ago, the entry of Reliance Jio in the market disrupted the operations of other service providers. This merger is a strategic response to Jio’s significant move, as per analysts quoted in various media reports.

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  • What does the deal mean for Idea shareholders

    The two companies agreed to merge their operations with a swap ratio of 1:1. This means every Idea share you hold will be exchanged with a new share in the merged company. This suggests that operationally, it is a merger of two equals. However, an independent valuation of the two businesses suggests Vodafone’s business is worth more. The assessment suggests Vodafone India’s business is worth Rs 82,800 crore, while Idea’s business is valued at Rs 72,200 crore. Analysts are positive about a merger of two large companies. In the long-term, such a consolidation could be good for future profit margins, analysts suggest.

    Mergers have the potential to shake up the markets. One such is the merger between Tata Steel and ThyssenKrupp (TK). Tata Steel and Thyssenkrupp (TK). Click here to read more.

  • Why did Idea share price fall

    Idea share price went to Rs 120 from an average of Rs 72.5 when speculation about the deal began. However, Idea’s shares fell 14% after the announcement of the deal. This is because investors were not clear about the deal despite a detailed announcement. A lot of operational issues have been left unresolved. While Kumarmangalam Birla has been named the chairman of the merged entity, a new Chief Executive Officer (CEO) and Chief Operating Officer (COO) are yet to be appointed. Vodafone will appoint the Chief Financial Officer (CFO) later. The new management structure is expected to evolve over the next 12-18 months. A good management is essential for investors.

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  • What next?

    To maintain an equal partnership, Vodafone will have 45.1% stake in the combined company. This is after transferring a 4.9% stake at Rs 110 per share to Aditya Birla Group for Rs 3,900 crore in cash. Aditya Birla Group will then own 26% of the combined company. The remaining 28.9% will be owned by Idea shareholders. The Birla Group will have the right to buy additional 9.5% stake from Vodafone over the next 4 years. This is to ensure that both the companies have an equal stake in the new company. Both the companies plan to complete the merger in 2018.

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  • Rs. 3,300 Crore

    Vodafone and Idea plan to complete the merger by 2018. The merger transactions will be subject to approvals. The transactions also have a break-fee of Rs. 3,300 crore subject to certain conditions. A break-fee is a penalty to be paid by the party who backs out of the deal.

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