Vodafone Idea Merger

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 TABLE OF CONTENTS

01
Overview
02
Principles of Partnership
03
Purpose of Merger

04
Synergy Benefits
05
Impact
06
Expectations vs Reality
Overview 01

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About Idea
● Idea Cellular was incorporated as Birla Communications Limited in 1995.

● It became a joint venture between Tata, Aditya Birla Group and the US
Telecom firm AT&T in 2001
● The company name was changed to Idea Cellular and the brand IDEA was
introduced in 2002 after a series of name changes following mergers and joint
ventures.

● AT&T exited the venture in 2005, followed by TATA in 2006

● Following the exit of both, Idea Cellular became a subsidiary of Aditya Birla
Group.
About Vodafone
● Vodafone Group plc is a British multinational telecommunications company.
● Its registered office is located in Newbury, Berkshire, England and its global
headquarters is based in London, England.
● It predominantly operates services in the regions of Asia, Africa, Europe, and
Oceania.
● The name Vodafone comes from voice data fone chosen by the company to
"reflect the provision of voice and data services over mobile phones".

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About Vodafone

● Vodafone India is a subsidiary of Vodafone Group Plc.

● Vodafone entered the Indian market in 2007 by acquiring a 67% stake in
Hutchison Essar for $10.7 billion. The business was owned by Hutchison
Whampoa Ltd and Essar was a minority stakeholder.
● The company was renamed as Vodafone Essar and 'Hutch' was rebranded to
'Vodafone’.

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About the Deal

Approval of the merger

20th March was given by Department 31st August
2017 of Telecommunication 2018

Board of Directors of Merger was completed and

Vodafone India and Idea 30th August the Board of Directors decided
jointly announced the 2018 to name their newly merged
merger between them entity as Vodafone Idea Ltd

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About the Deal
● The companies claimed that the merger is largely motivated by their
commitment towards Digital India.
● The transaction will start with stock transfer and the deconsolidation of the
Indian operations of Vodafone.

● Vodafone India will be separated from its parent entity-Vodafone Group Plc-
and it will be treated as a Joint Venture (JV), reducing Vodafone Group’s net
debt by Rs 55,200 crore.

● The implied swap ratio is 1:1 and it is based on Idea's price of Rs 72.5 a unit.
The implied enterprise value is Rs 82,800 crore for Vodafone India and Rs
72,000 crores for Idea.
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About the Deal
● Vodafone will contribute all of its Indian businesses including its standalone
towers with 15.8k tenancies but barring its 42% stake in Indus Towers. All of
Idea’s assets including standalone towers with 15.4k tenancies and its 11.15%
stake in Indus Towers will vest in the new entity.
● The merger agreement has a break-fee of Rs 3,300 crore payable under certain
circumstances.

● The deconsolidation of Vodafone India and its merger into Idea results in its
indirect listing in the National Stock Exchange. Vodafone will enter the Indian
stock market through its reverse merger with Idea, which is a listed company.

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About the Deal

● The Vodafone-Idea Ltd is headed by Kumar Mangalam Birla as the Chairman,

with CEO of the company as Balesh Sharma.
● On analysis of market share of revenue and subscribers, the merger made this
entity the largest company in Indian telecom sector.
● Under the terms of the agreement, the Vodafone’s stake is 45.2% of the total
market shares in the merged entity, the Aditya Birla Group stake is 26% and
the rest of the shares are held by the public.

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 PRINCIPLES
OF 03
PARTNERSHIP

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 ● Idea promoters and Vodafone Group will be
Equal joint promoters of the combined entity.

Partnership
● Equal affirmative rights to both promoters on
key matters.

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 ● Promoters of both the cos will have the right
to nominate three members each on the
board comprising of 12 directors 6 of whom

Board ●
will be independent directors.

Equal representation from Aditya Birla Group

Composition ●
and Vodafone Group.

Mr. Kumar Mangalam Birla would be the

Chairman of the Board. Currently also the
chairman is Mr. Birla

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 ● CEO & COO would be chosen upon mutual
consent before closure of the merger. It will

Key be chosen on the basis of “Best person for the

job”. Currently, the CEO and MD is Ravinder

Management ●
Takkar.

Vodafone would appoint the CFO. Currently,

the CFO is Mr. Akshaya Moondra.

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 ● Aditya Birla Group has the right to acquire up
to 9.5% additional shareholding from Vodafone
Group.
Shareholding ● If equalization is not achieved, Vodafone

Equalisation
Group will have to sell excess stake.

● Till equalisation, voting on excess stake held

by Vodafone to be restricted and exercised
jointly as per the agreement.

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 Holding
Structure 05

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01 Holding Structure of Idea
Promoters Public

42.45% 57.55%

Idea

100 % 49 % 100 % 100 % 100 % 100 %

ABTL ABIPBL ICISL ICSL ITL IMCSL

Indus Towers 17
Holding Structure of Idea
1. ABTL (Aditya Birla Telecom Holds 11.15% stake in Indus Towers and is engaged in the
Ltd) business of sale and purchase of communication devices

2. ABIPL (Aditya Birla Idea An association with Aditya Birla Nuvo Ltd (ABNL). ABNL has
Payments Bank Ltd) in-principle approval from RBI for Payments Bank

3. ICISL (Idea Cellular Services Provides manpower services to India

Ltd)

4. ITL (Idea telesystems Ltd) Engaged in the business of sale and purchase of
communication devices

5. IMCSL (Idea Mobile commerce Promotes mobile banking related initiatives (wallet
Services Ltd) business) but in process of merger with ABIPBL
 Holding Structure of Vodafone
01
Excluded from
Vodafone transaction
100 % perimeter
42 %
VIL Indus Towers
100 %
74.03%
50% Firefly
MSCL VMSL
Networks
100% 100%
CIMPTL VTSL

100% 100% 100% 100% 100% 100% 100%

YOU BROAD
VMPL VBSL VTL VF VIVL BAND
VIDL
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 Holding Structure of Vodafone
1. VIL (Vodafone India Ltd) Mumbai mobile circle operations

2. VMSL (Vodafone Mobile Services Other mobile circles excluding Mumbai. Includes ILD,
Ltd) NLD, ISP

3. VMPL (Vodafone M-Pesa Ltd) Operates the mobile wallet business

4. MSCL (Mobile Commerce Solutions Trading in handsets, data cards and related
Ltd) accessories

5. VF (Vodafone Foundation) CSR Activities

6. VTL (Vodafone Towers Ltd) Presently no business conducted

7. VIVL(Vodafone Idea Ventures Ltd) Presently no business conducted

 Holding Structure of Vodafone
8. VBSl (Vodafone Business Services Ltd) Shared services

9. CIMPTL Connect(India) Mobile Technologies Discounted handset business

Private Ltd)

10. VTSL (Vodafone Technology Solutions Ltd) Presently no business conducted

11. Firefly Networks JV between Vodafone and Bharti Airtel to

provide WiFi Hotspots

12. You Broadband Broadband internet services. The

transaction is subject to closure

13. VIDL (Vodafone idea Digital Ltd) Under incorporation

 Resulting Structure
Idea Promoters Public Vodafone

21.1% → 26% 28.9% 50% → 45.1%

Merged Entity

Payments Other subs/

Mobility Towers
bank JVs
-Captive towers and -Idea Money
Both Mobility tenancies
-You
Businesses -Idea: 8,886/15,418 -M-pesa Broadband
-Vodafone: -Aditya Birla -Firefly
1,926/15,846
-Idea’s 11.15% stake Idea Payments -Other
in Indus bank subsidiaries
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 Purpose
of Merger 02

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 ● Accelerate the availability of high-speed

Realizing the
mobile broadband services throughout India.

● Support sustained investment to create a

‘Digital India’ ●
‘World-Class’ telecom infrastructure.

Better utilisation of national resources and

creation of ‘Digital Highways’.

● Improved capability to offer Digital Services

vision including content and transition Indian
masses to a Digital Life.

● Drive Financial Inclusion through deeper

penetration of Payment Banking and Digital
Wallet Services

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 ● Excellent consumer experience & industry
leading coverage on back of complementary
footprint.

Delivering ● Largest broadband and voice capacity to

market unlimited voice plans & very large

benefits for ●
mobile broadband bundles.

Offer attractively priced services and

consumers innovative products in a competitive telecom

market .

● Best-in-class National & International

Roaming experience Better offerings for
Enterprises across the country.

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 ● Substantial Opex & Capex synergies.

● Creating a stronger listed business with a

deep spectrum position – Accretive
Creating transaction.

●
value for
Improved Return on capital from higher scale.

● Synergy benefits to enable faster

shareholders ●
deleveraging of balance sheet.

Improvement in overall consumer ARPU

(average revenue per user) levels due to
higher adoption of broadband and digital
services.

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 Unparalleled ● Service footprint of 19,000 company branded
stores.

Service ● More than 28,000 contact centre agents to

serve 400mn customers.

Infrastructure ● Managing daily volume of 2.3 mn consumer

calls.

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 Unparalleled Extensive
Business
Service Distribution
Expansion
Infrastructure Channel
● Service footprint of 19,000 ● Larger canvas for Payment ● Widest pre-paid reach
company branded stores Bank Services to 400mn through over 2 mn^
● More than 28,000 contact existing mobile users retailers
centre agents to serve ● Scale up presence in Fixed ● Post-paid reach to
400mn customers Line segment including Enterprise & Retail through
● Managing daily volume of 2.3 FTTH, MPLS etc 30,000 ‘Field Sales Team’
mn consumer calls ● Deeper penetration in the
Enterprise – MNC, National,
Regional & SMEs

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 Largest Highest
Complementary
Spectrum Broadband
Footprint
Portfolio Capacity
● Substantial overall spectrum ● Pan India Broadband ● 163 mobile broadband
holding of 1,850 MHz across currently covering ~650mn carriers – highest amongst all
multiple bands Indians; committed to reach operators
● Large broadband (3G/4G) 1.1bn ● 3G - Pan India 344 carriers
spectrum portfolio of 1,429 ● Strong brand appeal across with 2 carriers in 11
MHz metro, urban, rural & deep leadership telecom markets
● Premium 900 MHz band in 17 interior markets ● 4G -Pan India 1294 carriers &
circles ● New leadership positions in capability to offer up to 250
7 markets Mbps* in 12 markets

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Synergy 04
Benefits

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 What is Synergy?
● Synergy refers to the value addition made when two or more entities merge to create a new
entity and expand opportunities and possibilities beyond what was available to the
independent entities
● The expected synergy achieved through a merger can be attributed to various factors, such
as increased revenues, combined talent and technology, and cost reduction. In addition to
merging with another company, a company can also create synergy by combining products or
markets, such as when one company cross-sells another company's products to increase
revenues.
● The expected synergy from Vodafone Idea merger was ~INR 670bn
● The cos estimated annual savings of Rs. 14,000 cr. out of which 60% was from OPEX close to
Rs. 8,400 cr. and the remaining 40% or Rs. 5,600 cr was from CAPEX

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 Mergers in telecom industry help in reducing
redundancies and consolidating customer base.
Vodafone and Idea both hold stake in Indus Towers

Significant and they lease cell towers at certain prices. Post-

merger, Vodafone’s 42% stake in Indus Towers will
remain whereas Idea will dispose of its
Cost-cuts shareholding. This will eliminate redundant costs
since there will be a common expenditure on cell
OPEX related
tower tenancies.

Sharing of infrastructure will thus significantly

decrease the costs of the new entity.

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 Post-merger the new entity will have greater
access to fibre cables for 4G and 5G network.

Wider Market Vodafone is the market leader in Urban circles and

Idea is a key player in category B circles. The

Reach merger will allow the new entity to have a

stronghold in both urban and rural areas. The new
OPEX related entity will be the market leader in 12 out of the 22
circles, and it will be only behind Airtel in nine
circles.

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 ● Rationalisation of co-located sites following
network consolidation (~20%)

Network ● Energy savings & operational efficiencies with

elimination of older GSM (Global System for
OPEX related Mobile Communications) sites.
● Savings related to small cells and
connectivity cost.

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 ● Higher spectrum availability & high capacity
Single radio access network (SRAN)
deployment resulting in lower capex.
Network ● Re-deployment of overlapping broadband
equipment & avoidance of duplicate 4G
CAPEX related network expansion and upgrades.
● Lower fibre and electronic rollout needed for
building large broadband capacity

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Information ● Infrastructure sharing resulting in lower cost.
● Large scale to drive cost efficiencies for IT
Technology ●
platforms.
Common IT systems for the combined entity.
OPEX related

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 Customer
Brand/ Acquisition
Advertising & Servicing Others
● Combined advertising & ● Service centres, back ● Reduction in General &
business promotion. office and distribution Other administrative
efficiencies expenses
● Leverage strong affinity
of two powerful decade
old brands.

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 Benefits to the customers

Better Competitive
New tech
Network Offers

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Impact 06

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 Growing Market
More
consumer revenue
base share mergers

Cost Quality of
Job cuts
reduction service

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Market Revenue Share

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3G/4G Spectrum Share (inMHz)

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Subscriber Market Share

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Expectations
v/s 07
Reality

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 What was expected out of VI merger ?
Largest Telecom Lead the Subscriber
Operator in India market Share
With almost 400 million 41% Revenue With 40% combined market
customers, 35%
Market Share share of Idea and Vodafone
customer market share

Decrease the
Debt of vodafone Offer Superior
Idea Ltd. Services at
(with the sale or Tower Aggressive Price
Assets) Points
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 ● Highest-ever quarterly loss of Rs 50,897.9
crore was reported for Q2FY19 whereas Loss
of ₹11,643.5 crore was declared for the
period ended March 31, 2020 (Q4FY20)

What turned ● The gross debt of the merged entity

significantly increased to ₹1,15,000 crore
out to be the (FY19-20)

reality ?
● The Subscriber base in Q4FY20 declined to
291 million from 304 million in Q3FY20.

● VI made a net loss of Rs 6,438.8 crore while

Jio made a profit of Rs 1,350 even though
both companies have priced mobile services
at almost similar levels.

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 ● The total debt and ARPU became lowest at Rs
108, while Jio and Airtel were at Rs 124 and
Rs 129, respectively.

Why did the ● VI relied on conventional technology for voice

calls while Jio had deployed VoLTE (voice

company over LTE) since the beginning. Thus giving Jio

a huge lead

incur such ● Vodafone-Idea couldn’t offer phone calls

completely free like Jio without taking a hit

losses ? ●
on operating expenses.

There were multiple outages and customer

complains about frequent call drops, slow
data transfers and poor coverage.

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 ● By selling their 11.15% stake in Indus Tower.

How is the ● By improving its services towards consumers

to retain the existing base and encouraging

company new customers to join the network.

● By requesting the government to come out

fixing this with relief measures like extending the
moratorium on spectrum-related payment

crisis? and lowering levies and other charges, to

save distressed telco companies

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 Thank you!
Presented by:
Hinal Shah (042), Janvi Parmar (033),
Esha Agarwal (001), Aarshita Trivedi (049)