New Delhi:
The Idea Cellular board on Monday approved the merger of Vodafone India Ltd and its wholly-owned arm Vodafone Mobile Services with the company.
After the successful implementation of the deal, the combined entity will create India's largest telecom firm with a revenue share of around 40 per cent and a subscriber base of over 400 million, according to India Ratings and Research.
The merger with Vodafone will create India’s largest telecom operator with the largest mobile network in the country and provide pan-India footprint. The transaction is expected to close during the calendar year 2018, subject to approvals.
Let’s look at how does the Vodafone-Idea Cellular merger deal pan out for the entities:
Ownership:
Vodafone shall own 45.1 percent of the combined company after transferring a stake of 4.9 percent to the promoters of Idea for Rs 3,874 crore billion in cash concurrent with the completion of the amalgamation. The promoters of Idea will hold 26 percent of the Company and the balance will be held by the public.
The promoters have the right to acquire up to 9.5 percent additional stake at Rs 130/share from Vodafone under an agreed mechanism with a view to equalizing the shareholding overtime.
Merger Ratio:
The merger of equals with the joint control of the combined company. The merger ratio is consistent with the recommendations form the joint independent valuers. The implied enterprise value is Rs 82,800 crore for Vodafone India and Rs 72,200 crore for Idea excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/TVM EBITDA.
If the Vodafone and the Idea Cellular shareholding in the combined entity is not equal after four years, Vodafone will sell down shares in combined entity to equalise its shareholding to that of the Aditya Birla Group Company.
Transaction to lead to positive cash flows for Vodafone:
Once the merger takes place, Vodafone will consolidate Vodafone India. Post-closing, the combined company will be reported as a joint venture by Vodafone which would result in a decrease of Vodafone net debt.
Vodafone will contribute Rs 2,500 crore more net debt than Idea at completion. Based on Idea’s net debt of Rs 52,700 crore as of December 31, 2016, this would have implied Rs 55,200 crore to be contributed by Vodafone. The cash received from Aditya Birla Group of Rs 3,900 crore would lower Vodafone Group’s reported leverage by around 0.3x Net Debt/EBITDA.
Synergies
The capital expenditure synergies are expected to reach Rs 14,000 crore on an annual basis by the fourth full year post completion. This is equivalent to a net present value of approximately Rs 70,000 crore after integration costs. Operating cost savings represent 60 percent of the expected run-rate savings.
Dividend Policy
Pro forma net debt as at December 31 2016, was Rs 1,07,900 crore. On that basis, leverage of the combined company would have been 4.4x LTM EBITDA. The parties expect the combined Company to be self-funding going forward but are committed to maintaining appropriate leverage levels.
The parties have agreed that the combined company is appropriately capitalised and the excess cash flow is distributed to shareholders.
