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Idea approves merger with Vodafone India, to create India's largest telco

The U.K.’s Vodafone and Aditya Birla group firm Idea Cellular on Monday announced that they have kickstarted a mega merger deal.
Vodafone will own 45.1% of the merged entity, after it transfers about 4.9% to promoters of Idea and/or their affiliates for ₹38.74 billion rupees, Idea said. Idea will have the sole right to appoint the chairman.
Shares in Idea rose as much as 14.25 percent immediately after the merger news but gave up gains to be trading up 3.8%.
Vodafone and Idea began talks for a possible merger in late January this year.
The combined market share of both the telecos add up to 43%, making it the largest telecom firm, surpassing Bharti Airtel. The merger will create an entity with a revenue of around ₹77,500-80,000 crore besides eliminating duplication of spectrum and infrastructure capex, according to India Ratings and Research.
The spectrum of Vodafone India in seven circles and that of Idea in two, whose permits are expiring in 2021-22, is together valued at around ₹12,000 crore as per the last auction price. These permits are not in common circles, and hence there could be potential spectrum capex synergies between the two companies, the report said.

Key take-aways from the merger deal

Entire business of VIL and VMSL, excluding VIL's investment in Indus Towers, international network assets and IT platforms, to vest in co.
On amalgamation of VMSL becoming effective, co shall issue shares of co to VIL equal to 47 percent of post issue paid-up capital of co.
Vodafone to own 45.1 percent of combined co after transferring about 4.9 percent to promoters of Idea and/or affiliates for INR 38.74 billion in cash
Board of combined entity will be comprised of 12 directors including 3 directors appointed by each of Vodafone and Aditya Birla Group
Promoters of Idea, Vodafone have right to nominate 3 directors each
Promoters of Idea have sole right to appoint chairman
Vodafone has right to appoint CFO of company
Appointment of CEO, COO will require approval of both promoters of Idea and Vodafone
Promoters of Idea have right to buy up to 9.5 percent additional stake from Vodafone under agreed mechanism with view of equalising shareholdings over time
Agreement contemplates completion of proposed amalgamation with a period of 24 months
Until equalisation is achieved, voting rights of additional shares held by Vodafone will be restricted and votes will be exercised jointly
Idea to contribute all of its assets including standalone towers with 15.4k tenancies and 11.15 percent stake in Indus Towers
Vodafone to contribute Vodafone India including standalone towers with 15.8k tenancies but excluding 42 percent stake in Indus Towers
Vodafone will contribute 25 billion rupees more net debt than Idea at completion
Post-closing, combined company will be reported as a JV by Vodafone and accounted for under equity method
As combined entity will be jointly controlled by Vodafone & Aditya Birla Group, Vodafone will deconsolidate Vodafone India immediately

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