Question

Write about Vodafone and Idea Merger.

• Broad contours of the deal

• If you were overseeing this merger what are the non-financial issues that you foresee emerging as a result of this merger

– Specific issues

– Examples, facts

What are the specific issues that would have been present in Managing people and integration i.e the human resource aspect of the two different firms.

Answer 1

The vodafone idea merger was a very big consildation event in the Indian telecom industry, which has been plauged by the entrance of Reliance Jio

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

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.

The issues which i would spot would be

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.