Vodafone on Monday said that it is in exploratory discussions with the Aditya Birla group’s telecom ARM Idea Cellular for a merger.
Bharti chief Sunil Bharti Mittal had told CNBC-TV18 in Davos that such big moves require serious consideration. He didn’t rule out the possibility of a mega-merger.
Although, the merged entity will be bigger than Airtel, he said. “This is not a race to who has got the highest revenue market share. It is a race to a profitably viable sustainable industry.”
“Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone’s 42% stake in Indus Towers) and Idea.
Any merger would be affected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India,” Vodafone said in a statement.
The combined entity would have 43 percent revenue market share and a 40 percent active subscriber market share, according to brokerage firm CLSA.
The merged entity would account for over 25% of allocated spectrum and will have to sell about 1 percent to comply with spectrum cap norms, CLSA said. The merger, if it goes through, will create India’s largest telecom player both in revenues and subscribers, taking on the likes of market leader Bharti Airtel and Reliance Jio.
The latest entrant in the telecom sector, Reliance Jio, is fast acquiring subscribers on the back of free voice and data services under its Happy New Year offer.
There are, however, regulatory hurdles on the mergers and acquisitions front that await Vodafone and Idea Cellular. M&A norms mandate that revenue market share of the merged entity should not exceed 50 percent in any circle.
Also, the rules dictate that spectrum holding shouldn’t exceed 25 percent across all bands and 50 percent in each band individually. Experts see a spectrum cap breach in at least 5 circles in the 900 MHz band. Besides, revenue market share of the merged entity will overshoot the 50 percent threshold in six circles
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