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Merger talks could blunt competition thorn
Thursday 02 Feb 2017 Author: Steven Frazer

Vodafone (VOD) is in talks that could see it merge its Indian business with local rival Idea Cellular. Investors hope that a tie-up could ease the pressure of an intense price war that has broken out in the Asian state, where a billion-plus mobile subscribers are up for grabs.

The current savage battle for market share has been sparked by Reliance Industries (RELI:NS)-backed Jio, a new entrant to the Indian mobile market that has been offering free nationwide voice and 4G data since September 2016. As Shares explained last week (26 January 2017), this has forced other telcos to drastically cut prices in order to remain competitive.


Presumably, Vodafone hopes that a tie-up with Idea Cellular will be a decisive mobile subscriber landgrab. It would create a new market leader in India with approximately 387m mobile customers, according to figures from the Telecom Regulatory Authority of India (TRAI). Current leader Bharti Airtel has 262m.

Analysts at broker Jefferies welcomed the possible merger news with ‘cautious optimism,’ potentially stabilising the competitive landscape in India and maybe removing a friction point with regulators if Vodafone was to pursue a mooted merger with Liberty Global (LBTYA:NDQ), the US owner of Virgin Media. On the negative side, Jefferies also flags the possibility that Vodafone may need to raise around €3bn of new funding to help deleverage any new Indian joint venture.

We continue to like Vodafone’s income yield, now at 6.6% based on a 194p share price.

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