Vodafone

Idea
Merger
Team Genesis-IIM Nagpur Devanshu Verma
Nishant Thacker 1
Ashwin Joshi
 Industry Overview
Airtel acquired Videocon, Aircel, Tikona, Tata
Teleservices and didn’t need to merge with
Vodafone
12%

Industry Standings as on March 2017 38%

20%

• Airtel- The market leader and mainly focuses on telecom

Post Jio Market share
sector
• Jio- New entrant with deeper pockets aspires to become
the market leader 30%
• Idea- A subsidiary of Aditya Birla Group. Aditya Birla
Changing Industry
Others Reliance jio
Group has good reason to abandon if business is not • Ultra-cheap data:
profitable and has other companies to focus on Bharti Airtel Vodafone Idea
• Proliferation of 4G smartphones
• Vodafone- One of the world’s largest company and global
investor in telecom. India is not their main market and is • Industry Consolidation with only 3 major players
looking for exit • Sharp Increase in data consumption

2
Merger Rationale
• Jio’s entry changed the game from call based to data based service
1 Cause
• Entry of Jio with deep pockets, slashing
industry earnings with disruptive price war on
mobile tariffs.
• Telecom sector battling with heavy debt and
squeezed margins
• Vodafone sounded a major warning in
November 16 when it wrote down the value of
its Indian business by €6.3bn.
2 Synergies 3 When and How?
Timelines
•Tangible reduction in operational cost
•Significant value creation through synergies •March 2017 :Announcement of
•Leveraging 400 million customers and 41 percent Merger
revenue market share.
•Both Vodafone and Idea brands, which have strong •Jul 2017 : Received approval from
consumer affinity across metro, urban, rural and deep
interior markets, will continue to operate.
competition commission Of India
•August 2017 : Received no objection
letter from BSE and NSE
•August 2018 : Both entities merged
Governance structure
•Board Composition: 12 Member
Board with 6 independent directors
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•Equal Partnership: Both Idea
promoters and Vodafone group are

Competition and tariff war
 Sector witnessed a huge tariff war and reduction in
margins with entry of new telecom operator Reliance Jio
 Vodafone and Idea’s holdings of 3G and 4G spectrum was
far lower than that acquired by Airtel and Reliance Jio.
 This inhibited their ability to compete effectively, given
the shift towards increased data usage by customers
 Coming together will enable Idea and Vodafone to operate
in the same league, as far as spectrum footprint goes
 Idea and Vodafone individually operate at an EBITDA
margin of around 30%, far lower than Airtel’s margin of
around 40% and Reliance Jio’s targeted margins of 50%.
Motivation
Reliance Jio’s entry with free voice and data
services in September 2016 chipped away
industry revenues
Investor sentiments
 Vodafone has sunk billions of dollars into the Indian market,
Vodafone now suddenly looks far less ambitious with its India
plans. 
 Vodafone’s investors were recommending an exit from India.
 The company chose the middle path—by retaining a stake (of
between 26 and 35%)
 It raised the cash by selling its remaining exposure—investors in
the merged company might viewed this shrinking interest as a
sign of lesser interest in the Indian market’s prospects
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 The Merger helped fending off the competition
from Jio
Merger Benefits
 Both entities believed the merger will create India’s biggest telecom
service provider having a customer base of over 394 billion - more
than that of Airtel who is having 263.35 million mobile subscribers.
 Synergy benefits that accrue by combining operations.
 Annual savings, both in terms of operating costs as well as capital
expenditure, will be around Rs.14,000 crore annually by the fourth
full year of operations as a combined entity
 larger scale and elimination of duplicate costs, margins can rise
substantially
 Increase in market share - 35% market share, a 41% revenue market
share
 Post merger they consolidate to largest telecom operators in the
country
Merger Risks
 Merger delay - combined entity suffering a 150 basis points (bps) reduction
in RMS (revenue market share), which means it stands to lose Rs 600-
1,000 crore revenue share for every two-month delay
 Post merger, expected that they will lose 5% revenue market share in FY18
and a further 2% during the network integration period.
 The combined subscriber share will fall from the current 40% reported to
34.6% by March 2018
 The merged entity in several big markets are facing service quality issues
as the telco negotiates stiff challenges around network integration
 Service quality is key to the Rs 14,000-crore synergy benefits 
 Incremental loss of revenue market share and subscriber base of the
combined entity as it attempts to address these issues across 22 circles in
India and that too in the middle of a fierce price war.
 Vodafone Idea lost over 20.5 million customers between September and
November 2018, due to the minimum recharge plan that the telco has
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introduced with the aim of increasing average revenue per user
 Market Response

Customer’s Response Employee’s Response

Initial Expectations: Initial Expectations:
Better network coverage, Lower prices, better services NOT HAPPY, Fear of losing jobs were in both companies

Result: Result:
• Market share dropped just after the merger announcement • Number of Employees in Mar-2017 = 21,153
From 43% to 36.3% • Number of Employees in June-2019 = 13,520
• This explains people were unsure that they will benefit • So, overall about 7,633 people left or laid off
much from deal in last 2 years
• Vodafone loyal customer’s were not happy

Stock Market INITIAL Response Stock Market FINAL Response

(Just after announcement)
London Stock Exchange – VODAFONE GROUP PLC
+ 5%
National Stock Exchange – IDEA COMPANY
+ 21%
(After analyst’s understood the deal structure)
London Stock Exchange – VODAFONE GROUP PLC
+ 2%
National Stock Exchange – IDEA COMPANY
- 13%
 DEAL SIZE Deal Structure
• Vodafone is holding a 45.1% stake in the combined
Subscribers Data entity
• Aditya Birla Group(ABG) will hold 26.0% of the
Year Mar-17 Sept-18 july-19 combined entity
No. of 46.87 40.44 36.12 • Both the promoters intend to equalize their shareholding
subscribers crores crores crores • ABG has the right to purchase up to a 9.5% stake of the
combined entity at an equity value of Rs130/share within
the first three years of the transaction.
• Vodafone has to sell extra stake in five years if
At the announcement Merger Currently 10 crores equalization does not happen at the beginning of 5th year
of merger completed less subscribers

• Current Share Price of VODAFONE IDEA

Current Scenario of •
LIMITED Rs 6.35/share
Market capitalisation- Rs 17,800 Crores
• The company reported loss of Rs 14,056 crores
Vodafone-Idea Limited •
loss in
Financial year 2019.
• Company is still facing stiff competition from
Airtel and Jio