The competition regulator approved the proposed merger between Vodafone India and Kumar Mangalam Birla-owned Idea Cellular on Monday, a key step in paving way for creation of India’s largest telecom company by subscribers.
Idea Cellular confirmed the Competition Commission of India’s approval to the merger under sub section (1) of section 31 of the Competition Act.
“The transaction is expected to close during calendar year 2018, subject to customary approvals,” the company said in a statement on Monday.
UK-based Vodafone Group Plc’s India unit and Idea, ranked at two and three, respectively, will have almost 400 million customers and a 41% revenue market share when they merge.
The combined entity, with its scale, size and synergies, will be a stronger rival to Reliance Jio Infocomm, which disrupted the market with free voice and data offers for about six months after it started services in September.
The CCI approval is a “very welcome development for both the Indian M&A landscape and the telecom sector and will serve to fuel more investment in capacity and coverage across a battling telecom sector,” Shweta Shroff Chopra, partner at legal firm Shardul Amarchand Mangaldas & Co, representing Vodafone India to CCI, told ET.
While experts welcomed the competition regulator’s clearance, they said the plan is yet to get approval from the Securities & Exchange Board of India, which will decide whether the merger would trigger an open offer.
MATHS OF THE DEAL
Vodafone will initially hold a 50% stake in the combined entity, while the Aditya Birla Group and public shareholders will hold 21.1% and 28.9%, respectively. Vodafone will divest a 4.9% stake to the Birla group, which would increase its stake to 26%, thus crossing the threshold for an open offer.
The takeover code stipulates that if an entity acquires 25% of a listed company, it has to make an open offer for an additional 26% from public shareholders.
ET reported in its July 13 edition that Sebi had sought clarifications regarding purchases of Idea stock by Pilani Investment & Industries Corp, part of the Aditya Birla Group, ahead of an official announcement of the merger discussions.
The Vodafone Group told the London Stock Exchange on January 30 that it was in discussions with the Aditya Birla Group about an all-share merger of Vodafone India and Idea. Following this, the Idea stock surged 26% to Rs 97.75. It is learnt that the stock exchanges have submitted their reports to Sebi in this regard.
Vodafone and the Birla group announced in March that Kumar Birla would be chairman of the new entity. Vodafone would appoint chief financial officer while the two companies would jointly choose CEO and operations head before closure of merger.
