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ICFAI BUSINESS SCHOOL-HYDERABAD

BUSINESS STRATEGY
(SEMESTER – 3)

PROJECT REPORT
ON
MERGERS & ACQUISITIONS

VODAFONE IDEA (MERGER)

&
VERIZON VODAFONE (ACQUISITION)
Submitted by – Group 5
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ICFAI BUSINESS SCHOOL, HYDERABAD

(INSTITUTE OF CHARTED FINANCIAL ANALYSTS OF INDIA)

CERTIFICATE

This is to certify that this project report entitled “MERGERS & ACQUISITIONS” is a
bonafide work of Group - 5, who carried out the project under the supervision of Professor
Sriram Rajann in partial fulfilment of the requirement for the award of degree in Masters in
Business Administration during the academic year 2020-2022.

Supervisor
Professor Sriram Rajann
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SUBMITTED BY (GROUP – 5)
SECTION – H
NAME ENROLMENT NO
APURVA VERMA 20BSPHH01C0213

GARIMA AGARWAL 20BSPHH01C0431

PAVAN BHATIA 20BSPHH01C0835

RITUSHREE GOSWAMI 20BSPHH01C1005

SHYAMOLI BOSE 20BSPHH01C1231

SIDDHANT KUMAR BHADANI 20BSPHH01C1235

SRIHITHA.K 20BSPHH01C1281

INDEX
Particulars Page No.

Cover page 1

Certificate 2

Group 3

Introduction 4

Merger – Vodafone & Idea 5-8

Acquisition – Verizon & Vodafone 9-12

Conclusion 13
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INTRODUCTION
Mergers and Acquisitions (M&A) is a general term that describes the consolidation of
companies or their assets through various types of financial transactions. When one company
takes over another and establishes itself as the new owner, the purchase is called an acquisition.
On the other hand, a merger describes two firms, of approximately the same size, that join
forces to move forward as a single new entity and enjoy the synergetic effect, rather than remain
separately owned and operated.

With the announcement of Digital India by Modi Government, many advancements has been
seen in various sectors in virtue of promising new age technologies. The merger of Vodafone
and Idea is one such event to break the tariff war. This report is inclined towards understanding
about the Merger that took place between Vodafone and Idea on August 2018 and the
Acquisition of Vodafone by Verizon in 2013. The acquisition took place and the deal was
finalised at $130 billion. The merger between Vodafone and Idea was finalised at a value of
$23 billion which was announced by Idea.

The main reason for the Vodafone-Idea merger was to Handel the rising dominance of Reliance
Jio in the Telecom industry. A lot of other acquisitions and mergers was also seen in the
telecom sector at that point of time in order to beat the competition. However, the merger came
as a challenge for the company as after the news of the merger the share price of idea started
to decline. Their merger (Vodafone Idea Limited) led to the emergence of the largest Telecom
Company in India with a market share of approximately 35%. The merger of these companies
also came as an advantage to the end consumers in terms of more coverage, newer and smarter
technology, more value etc.

The acquisition deal gave Verizon the right to 45% stake of Vodafone. This acquisition deal
gave Verizon full ownership of the U.S. wireless industry leader in network performance,
profitability and cash flow. Over the past years, Verizon Wireless has become the largest and
most profitable wireless company in the U.S., and this could not have been achieved without
the successful partnership between Verizon and Vodafone. This acquisition brought
opportunities for greater financial flexibility, enhanced operational efficiency and innovations.
These M&A deals are very important for the organization as it helps the organization become
more powerful, efficient and profitable.
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MERGER – VODAFONE & IDEA

INTRODUCTION OF MERGER

On August 31, 2018, the two telecom giants Idea Cellular Limited and Vodafone Limited
announced the completion of their long-pending merger – thus creating Vodafone Idea
Limited – the largest telecom service provider in India, with a subscriber base of over
408million and a revenue market share of 32.2%. The merger was announced on March 20,
2017, wherein Idea Cellular Limited, the third largest telecom company in India announced a
USD 23 billion deal with the second largest telecom operator, Vodafone India Limited to
create a synergy for improving financial and operational efficiencies. The merger came into
play during the consolidation era in the Indian telecom sector which was triggered by the
entry of Reliance’s Jio Infocomm Limited (JIO) in September 2016 with a disruptive pricing
strategy changing the face of the Indian telecom industry.The merger is expected to prove to
be a game-changer in the Indian telecom market in the near future.

REASONS FOR IDEA VODAFONE MERGER

1. The main reason for the Vodafone-Idea merger is to handel the rising dominance of
Reliance Jio in the Telecom industry. As Jio announced to provide free services in the
first 6 months. As a result, it started to capture the maximum part of the market.
2. Secondly, the free services from the Jio started the price war between the companies in
the telecom sector( as it in an oligopoly market structure).
3. As a result in case of a price war merger brings confidence in companies with synergy
benefits.
4. At last, the combined entity of Vodafone and Idea was expected to hold a strong position
in the industry. Such as in some circles it became the largest cellular service provider and
in some circle, it was the second-largest after Bharti Airtel. So, a joined company can focus
on being the service provider in pan India.
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STRATEGY FOLLOWED BY IDEA VODAFONE MERGER

The merger or acquisition of any company definitely impacts all its stakeholders – its

shareholders, promoters, investors, employees, retailers, distributors and customers. At the

time of such a deal, the involved parties must make sure to create value for all the

stakeholders and not penalize any particular stakeholder.

The following strategies were adopted by the two companies to facilitate smooth functioning

of the merger:

1. Vodafone Group offered ‘golden handshakes’, i.e., handsome severance packages to the
best-performing employees who were likely to be accommodated post-completion of
merger. The huge severance package made it easy for the employees to embrace the
merger without constant worries of their future with the company.
2. The companies planned to reduce their debt burden and generate cash through
rationalisation of tower tenancies – they had kept the option to monetize their Indus
Tower stakes – this whole move expected to create a synergy of USD 10 billion.
3. The treatment of employees from both partners to be done equally without any
discrimination on account of controlling stakes or other issues.
4. The companies decided to evolve a common work ethic and culture to focus on external
battles rather than create internal turf wars due to the decision of two brands functioning
separately.
5. The two brands functioning separately made it easier for the two companies to operate in
their strength areas and collaborate on their weakness areas – for instance the different
market reach of both brands was ensured with Vodafone being dominant in urban sector
and Idea in the rural sector and both of them retaining their dominance in home markets
along with the added bonus of having an appeal to each other’s markets for expansion
plans.
6. Retailers and distributors were offered higher incentives to sell subscription plans.The
usual rate of commission was Rs. 70 – Rs. 80 for a subscription plan being sold.Post the
merger, the company incentivised the retailers with a commission rate of Rs.170 – Rs.
180 for every subscription plan sold – this being done to ensure retention of current
subscribers and attracting new subscribers to choose Vodafone-Idea over other operators.
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BENEFITS OUT OF THE MERGER

The deal was made to optimize the functioning of both the companies in the face of threat of

competitive pricing and increased debt burdens. In the words of Vodafone Group CEO, Mr.

Vittorio Colao – “We are very complementary. Idea is strong where Vodafone is weaker.

Vodafone is strong where Idea is weaker”. The merged entity is expected to generate

beneficial and value creating synergies in the following ways:

1. The merged entity is India’s largest telecom operator with a subscriber base of more than
408 million and market share of more than 35.61% - replacing Airtel as India’s largest
telecom operator.
2. Using brand leverage of each other due to separate functioning – both having a defined
and different segment of customers and hence a wider reach as a unified brand through
existing two brands
3. Measures of cash generation such as selling Indus Tower stakes could aid in reduction of
Net Debt from 4.4 to 3 times of the merged company
4. Merged entity has a 1850MHz spectrum across multiple bands (Airtel having 1692MHz
and Jio having 1310MHz) and thus a higher network capacity is ensured for the combined
entity. The freeing of voice spectrum due to the merger is also beneficial since it could be
used for expanding wireless broadband services
5. A huge broadband network of 340000 sites and 1.7 million retail outlets ensures maximum
reach to the customers and end-users
6. The company to become the world’s second largest telecom operator in terms of subscriber
base after China Mobile Communications Ltd.
7. Rationalisation of operating expenses and capital expenditure benefits could further help
in reducing the debt burden and increasing the valuation of the combined company.
8. Reduced network capex due to redeployment of overlapping equipment could be beneficial
in two ways: in expanding coverage in uncovered territories and to reduce the debt burden
on the companies
9. Overall consolidation to lead to a better financial health of the telecom sector in India
with only 3-4 major players staying in the arena
10. A better and more robust ecosystem of towers leading to better cellular services for
consumers is expected
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11. Better grasp on new services like integrated digital services including voice, data, mobile
payments, and fixed line offerings among other services

Thus, there are a lot of benefits expected out of the merger – the key being reduction in debt

and costs and efficient usage of infrastructure and markets. Apart from this, the merger is

expected to generate INR 140 billion annual synergy equivalent to an NPV of INR 700

billion. The equity infusion of both companies – Idea at 67.5 billion and Vodafone at 86

billion coupled with the monetization of stakes in standalone towers could provide the

company a strong cash balance of INR 193 billion post payment of INR 39 billion to DoT.

The additional option to monetize the Indus tower stakes can generate a cash consideration of

INR 51 billion. Thus, the merger is expected to be beneficial both financially and

operationally.

IMPACTS OF MERGER ON TELECOM INDUSTRY

There are also several other implications that this merger of Vodafone case study will bring
forth on the telecom industry.

1. Firstly, there can be initiatives based on the renewal of price discipline for the disruptive
entry by Jio has caused some serious misbalance

2. Secondly, the poor financial health of the telecom sector can be observed. And through
such mergers, there will be an infusion of health and life. Since India is the fastest-growing
market in terms of subscriber base.

3. Through the merger, Vodafone and Idea will overcome their debts and a large sum of
credit will be infused into the system

4. The deal has also saved both the telecom companies from selling off their business. As
was being planned by them initially and this would directly impact the quality of services
being provided by different players in the industry
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ACQUISITION – VERIZON & VODAFONE

INTRODUCTION OF ACQUISITION

On September 3, 2013, Monday morning, Verizon announced that it had agreed to pay $ 130
billion to acquire the Vodafone Group of its wireless business in the United States, with a
45% stake. The cash and equity deal gave Verizon full access to the earnings of America's
largest mobile operator, giving it new power to invest in its mobile network and fend off
predator challenges in a tough market that is becoming quickly more competitive. For the
British group, the agreement will allow it to return 71% of its $ 84 billion in net income,
including all shares, to shareholders while increasing investments in its network to generate
different from its competitors. The deal was the third largest deal in the world at the time.

REASON FOR ACQUISITION

1. Vodafone's involvement and presence in other markets around the world would have
affected Verizon Wireless' expansion ambitions.
2. Vodafone's revenue declined, forcing it to seek liquidity and focus on operations in
Europe and emerging markets. Vodafone intended to launch a new organic investment
program, Project Spring, to establish a new network and lead service with additional
investments of $9.35 billion over three fiscal years.
3. While nearly all adults in the United States carry cell phones, the need for other home
devices may require wireless connectivity - such as tablets, thermostats, refrigerators,
home security devices and more. cameras - is on the rise. In response to this trend, US
mobile operators had rolled out data plans that are accessible to all family members, and
they will compensate for lost voice and message revenues.

Researches of previous acquisition in telecom sector

applicable in Vodafone Verizon Acquisition as listed in the
following.

(i) Assumption of composite trap

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It indicates that immediately before and after the announcement of the takeover, the share
price of the acquiring company is negatively affected and the share price of the target
company is positively affected. .

Applications in Vodafone and Verizon

The price of Verizon that the original acquirer fell after the acquisition, and the price of
Vodafone increased slightly. Verizon stock price was $ 48.60 on August 29, 2013, then fell to
$ 45.08 on September 3, 2013. Vodafone stock rose 3.4% on the London Stock Exchange on
September 2 2013.

(ii) Technical efficiency

M&A transactions are one means of improving relative technical efficiency in an effort to
increase efficiency.

Applications in the Vodafone Verizon Acquisition

The acquisition provided Verizon with operational efficiency as well as technical efficiency
by making its corporate business unit more efficient and by targeting the market. emerging
wireless market and for Vodafone this has helped him ease his shareholder pressure and
liquidity to invest in emerging markets like South Africa and India.

(iii) Innovation activities

Non-technology mergers and acquisitions are likely to have a negative impact on the
acquiring company's post-merger and innovation activities. In technology mergers and
acquisitions, a relatively large scale of the market.

Applications in Vodafone Verizon Acquisition

The acquisition is technically based on wireless acquisition, so Vodafone and Verizon can
grow and scale in their respective markets. Vodafone will increase its market share in
emerging markets such as India and South Africa, while Verizon will increase its share in the
wireless and enterprise sectors in the United States and Canada.
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BENEFITS FOR VERIZON WIRELESS

• Verizon expects the deal to increase earnings per share by 10 percent once the deal closes.
It will also increase dividends to shareholders. It implies a better image of the company in
financial markets as well as among shareholders. The deal also means that Verizon
Wireless will no longer have to share profits with Vodafone.
• 100% Verizon Wireless will significantly improve Verizon Communications' bottom line.
• This deal gave Verizon full access to the wireless unit's cash, and it can invest in
superfast cellular networks and fend off challengers for years to come. In the last quarter,
revenue from Verizon Wireless services grew 8.3% year-over-year, with total connections
exceeding 100 million. Its 4G LTE coverage provides the fastest data network available
in the US and in 500 markets across the US
• Verizon Wireless was better equipped to take advantage of competitive dynamics are
changing in the marketplace and take advantage of the continued growth in consumer
demand for wireless, video, and broadband services.
• The agreement allowed Verizon to operate more efficiently. This will help Verizon focus
on making products and solutions more integrated and seamless for customers.
• With Verizon fully under its operational warranty, it can integrate more wired and
wireless devices, especially into backend operations and IT systems.
• Verizon formed an “Enterprise Solutions” unit to target enterprise customers, but the
limited ownership of the wireless service kept it in check and they were able to grow very
quickly by offering contracts and transactions. more consolidated.
• Verizon Wireless planned to expand into Canada by licensing some of the country's
airwaves or wireless spectrum, but having to constantly report to Vodafone presents
complications.

BENEFITS FOR VODAFONE

• This agreement provided additional liquidity to Vodafone to pursue its ambitions of

expansion in Europe. Vodafone will buy mobile phone providers and expand into the
lucrative world of mobile services.
• Vodafone will return most of the proceeds to shareholders in the form of dividends. This
will strengthen the credibility of Vodafone's management with shareholders and also in
the financial markets, which could help it in its future endeavors.
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• It was reported that Vodafone will spend around USD 30 billion in cash to reduce debt
and create new ones.
• Vodafone has committed about $10 billion over the next three years to modernize its
fourth-generation mobile network by establishing new fiber routes to provide better
broadband Internet coverage to customers row. European products.
• Vodafone was expected to make tens of billions of dong in profit from the sale but will
pay only $5 billion in taxes to US authorities and nothing to British tax authorities.
Vodafone structured the deal as a two-step transaction to avoid even paying taxes in the
United States.
• Vodafone announced Project Spring, a $6 billion program to accelerate the growth of its
4G network in five major European markets by 2017. It will also improve 3G coverage in
multiple locations and build out its 3G services in emerging markets like India and South
Africa.
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CONCLUSION

From the various findings and interpretations of the report it can be understood that it was very
important for Vodafone and Idea to merge as there stood a strong competition in front of them
i.e. JIO who had announced free internet service after which the general public started moving
towards Jio and Jio was all set to become Monopoly. It was assumed that after the merger
Vodafone Idea would become the top player in the industry but it can be seen now that Jio still
continues to hold the major market share today and many new customers yet continue to choose
Jio because of their better service and signal quality and Innovation in the products or services
they deliver. The concept of consolidation seems to save costs and financial opportunities that
aid financial performance. And whether the company will be able to monetize the remaining
spectrum must be seen in the future. With the merger of Vodafone and Idea a hype was created
that it is the national and global leader of telecom market.

With the acquisition of Vodafone by Verizon this statement was supported that this is a wireless
world. It is an indication that Verizon Wireless is matured (in terms of assets and experience)
to have control of wireless business alone in US and does not need experienced partners like
Vodafone. It may allow Verizon Wireless to work with more freedom and may help Verizon
to strengthen consumer and enterprise wire line markets. Analysts even said that this huge
investment by Verizon could then refrain Verizon from making any further big investment.
During the acquisition there was even no news about layoff of employees in either Verizon or
Vodafone. The deal has some similarities with other deals of the past such as Nokia and
Microsoft and other deals in Business Intelligence domain.

It is quite evident that Mergers & Acquisitions (M&As) have their prime target to achieve
synergy in various business processes and operations – hence identifying different kinds of
synergies (viz. location synergies, operational synergies etc.) is the most sought-after goal. A
wider range of products and services can also be explored by the general public along with
reasonable cost.
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REFERENCES

• https://www.reuters.com/article/us-vodafone-verizon-idINBRE97S08C20130903
• www.researchgate.net

• www.verizon.com

• economictimes.indiatimes.com

• www.vodafoneidea.com

• www.thekeepitsimple.com