MERGER OF VODAFONE INDIA

AND IDEA CELLULAR

Brief info about the company

Vodafone Idea or Vi (stylised as V!) is an Indian mobile network operator with its
headquarters based in Mumbai and Gandhinagar. It is a private company and an all-
India integrated GSM operator offering 2G, 3G, 4G, LTE Advanced, VoLTE, and VoWiFi
service. As of 31 September 2023, Vi has a subscriber base of 219.8 million, making it
third largest mobile telecommunications network in India and 11th largest mobile
telecommunications network in the world. 'Vodafone Idea Limited' was created on
31 August 2018 by the merger of Vodafone India and Idea Cellular. In 2020, the two
separate brands Vodafone and Idea rebranded as Vi.

Type of acquisition

 It was a horizontal merger amongst the two biggest players in the telecom industry.
This merger deal was worth $23 billion.

Date of issue and implementation

 In March 2017, it was announced that Vodafone India and Idea Cellular would merge.
The merger got approval from the Department of Telecommunications in July 2018.
On 31 August 2018, the new entity was named Vodafone Idea Limited. Under the
terms of the deal, the Vodafone Group held a 45.2% stake in the combined entity, the
Aditya Birla Group held 26% and the remaining shares were to be held by the public.
 Vi lost a significant number of gross and active subscribers in the month of August
2020.
 Until 7 September 2020, Vodafone Idea Limited operated two separate brands:
Vodafone and Idea who both operated pre-paid and post-paid GSM service.
  On December 2023, the Vodafone Idea Merger VI Telecom became the third largest
cellular service providers in India.

Reasons of merger

 T‌ he main reason for the Vodafone-Idea merger is to handle 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.
 ‌The free services from the Jio started the price war between the companies in the
telecom sector( as it in an oligopoly market structure).
 ‌As a result in case of a price war merger brings confidence in companies with synergy
benefits. .
 ‌It aimed at enhancing competitiveness in a rapidly evolving landscape
 ‌to overcome their debts and a large sum of credit will be invested into the system.
 ‌to offset the entry of Reliance Jio into the Indian telecommunications request and
increase competitiveness.
 ‌The combined entity of Vodafone and Idea was expected to hold a strong position in
the industry.

Issues faced by company

 High debt: Vi has a high debt burden, which is a major challenge for the company.
 Financial losses: Vi has been incurring financial losses in recent years.
 Delayed 5G rollout: Vi has fallen behind its competitors in the race to roll out 5G
services.
 These issues can be resolved if Vi focused on:
 ‌Reduce debt: Vi needs to reduce its debt burden in order to improve its financial
health. This can be done by selling non-core assets, raising capital from the market,
or negotiating with its lenders.
  I‌mprove profitability: Vi needs to improve its profitability by increasing revenue and
reducing costs. This can be done by launching new products and services, targeting
high-value customers, and optimizing operations.
 ‌Accelerate 5G rollout: Vi needs to accelerate its 5G rollout in order to compete with
its rivals. This can be done by increasing investments in 5G infrastructure and
partnering with other companies.
 ‌Expand into rural markets: Vi can expand its operations into rural markets by offering
affordable and customized services to rural customers.

Swap ratio

 According to the agreement, Vodafone PLC has joined Idea cellular from the Birla
group with its Indian subsidiary Vodafone India with a swap ratio of 1:1..

Before and after effects

 before the merger of VI, Vodafone India and Idea Cellular were run by two different
companies. In year 2017, they received approvals from their respective Boards for a
merger. It was the creation of India’s largest telecom company beating Bharti Airtel
and Reliance Jio.
 Previously,
o Vodafone provided its services in over 25 countries across the globe, partners
with mobile networks in 46 more countries, and has fixed broadband services
in 18 markets, majorly in Europe, Africa, the Middle East, and Asia pacific.
o The Vodafone Group had 534.5 million mobile customers and 19.9 million
fixed broadband customers as of 2018. This included India and all of the
customers of the company including the joint ventures.3. Idea Cellular was
the first multinational company under the Aditya Birla group. It was
established in 1995 and was the third-largest telecom company in India, with
a market share of 15.9%.
 Both the companies stated that the synergy would be extremely cost-effective. The
estimated savings annually would go up to 14,000 crores. The savings would be in
the form of both capital expenditure as well as operating costs.
 EBITDA (earnings before interest, tax, depreciation, and amortization) of both the
companies were around the margin of 30%. It was comparatively lower than that of
Bharti Airtel and Reliance Jio Infocomm Ltd.
 Individually, the market share of Vodafone India and Idea was very low as compared
to Bharti Airtel and the recent entry of Reliance Jio. Reliance Jio took the telecom
industry by storm.
 The merged company would gain 400 million subscribers, a customer market share of
35%, and a revenue market share of 40%.
AFTER EFFECTS

 The Vodafone idea merger was embraced by all the stakeholders but had its
repercussions as well.
 The merger took a toll on the employees of both companies. The employees were
met with serious uncertainty. there was a huge cultural difference that affected the
remaining employees. The companies were different with respect to their salary
levels and human resource processes. According to a few of the employees, the new
structure which was adopted after the merger led to demotions. Many of the Idea
employees who were asked to leave were accommodated in different companies
under the Aditya Birla Group, but no such resort was given to the employees of
Vodafone India.
 In the month of September 2020, Vodafone – Idea rebranded itself. The company
used the initials to rebrand itself as ‘Vi’. The rebranding took place after almost two
years of the merger, however it shows the spirit of integration. The company in its
statement said that the name ‘Vi’ is to be pronounced as ‘we’. The long-overdue
rebranding was done to commemorate the final lapse of the merger. It marked the
consolidation of the two companies after three years of merger talks and execution.
 The announcement of the rebranding was however led by the Hon’ble Supreme
Court of India directing Vodafone Idea to pay back government dues which is
approximately INR 504 billion.

Currently, Vodafone Idea's losses widened to ₹8,737 crore for the September quarter from
₹7595 crore in the same quarter last year owing to high interest and finance costs, despite
an increase in revenue and a larger number of 4G subscribers[11:26, 10/04/2024] Jheel
Bcom: 1.brief info about the company

In conclusion, the Vodafone and Idea Telecom merger was a strategic move to counteract
the entry of Reliance Jio into the Indian telecommunications market and increase
competitiveness. However, the company is now heavily in debt due to a combination of legal
dues and declining revenue