Vodafone's Vodafone India, Idea to combine

Vodafone is to combine subsidiary Vodafone India with Idea Cellular in a multi-billion dollar deal that creates the largest telecoms operator in India.

It said the deal excluded its 42% stake in Indus Towers, with the combined entity having almost 400m customers, 35% customer market share and 41% revenue market share.

The combined company would be able to draw on support from its two largest shareholders, Vodafone and the Aditya Birla Group, to drive growth, investment and to create value for all stakeholders.

Vodafone said it would be a merger of equals with joint control of the combined company between it and the Aditya Birla Group, governed by a shareholders' agreement.

The merger ratio was consistent with recommendations from the joint independent valuers.

The implied enterprise value is INR828bn ($12.4bn) for Vodafone India and INR722 billion ($10.8bn) for India-listed Idea, excluding its stake in Indus Towers.

The deal valued Vodafone India at 6.4-times EV/LTM EBITDA and Idea at 6.3-times EV/LTM EBITDA.

There were substantial cost and capex synergies with an estimated net present value of about INR670bn ($10.0bn) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of INR140bn ($2.1bn) on an annual basis by the fourth FY post completion.

Vodafone would own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for about INR39bn (c.$579m) in cash concurrent with completion of the merger.

The Aditya Birla Group would then own 26.0% and had the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.

If Vodafone and the Aditya Birla Group's shareholdings in the combined company were not equal after four years, Vodafone would sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.