The Vodafone-Idea merger is going to create the largest telecom firm in India
The government has approved the merger of Vodafone India and Idea Cellular that will create the country's largest mobile phone operator worth more than $23 billion with a 35 per cent market share, according to top officials.
The Department of Telecommunication has given its stamp of approval for the amalgamation after the two firms provided for Rs 7,248.78 crore as one-time spectrum charge (OTSC), a senior government official told news agency PTI.
Confirming that approval has been accorded for the mega deal, Telecom Secretary Aruna Sundararajan said the government expects the market to stabilise post merger.
"We expect to see robust growth in the telecom sector with the emergence of three strong private sector players, and one public sector player," she told PTI.
The combined entity, Vodafone Idea Ltd, with nearly 430 million customers would overtake Bharti Airtel, which currently has 344 million users. The deal also comes at a time of raging price war, triggered by new entrant Reliance Jio, in the world's second-largest telecom market.
In Mumbai, Aditya Birla Group Chairman Kumar Mangalam Birla confirmed getting the nod, saying it marks the beginning of an "exciting journey".
"The actual work starts now so we will see...we are very optimistic about it," Mr Birla, who will be the Non-Executive Chairman of the combined entity, said.
Idea Cellular is part of the diversified Aditya Birla Group.
On how long it will take for the merged entity to be operational, Mr Birla said it would take "a few weeks" and added that the companies are yet to decide on the branding for the new entity.
The mega deal was announced by Vodafone India and Idea Cellular in March 2017 to take on competition from richest Indian Mukesh Ambani's Reliance Jio, which has shaken up the telecom market with free voice calls and dirt cheap data offering.
As per norms, telecom operators who were allocated spectrum without auctions and beyond the limit bundled with their licence were required to pay the market price for the radiowaves. Of the total demand raised by the telecom department, about Rs 2,100 crore was on account of OTSC of Idea cellular and the rest for Vodafone.
Accordingly, the DoT had asked the two companies to pay Rs 3,926.34 crore in cash and furnish bank guarantees worth Rs 3,342.44 crore. The approval follows the two entities' recently complying with the DoT's requirement "under protest".
In the combined entity, Vodafone would own 45.1 stake, Aditya Birla Group would have 26 per cent and shareholders of Idea Cellular would have 28.9 per cent.
The Aditya Birla Group has the right to acquire up to a 9.5 per cent additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholdings over a period of time.
If Vodafone and the Aditya Birla Group's shareholdings in the combined company are not equal after four years, Vodafone would reduce its stake in the combined company to equalise shareholding with that of its Indian partner over the following five-year period.
The deal gave Vodafone India an implied enterprise value of around Rs 82,800 crore and Idea an enterprise value of Rs 72,200 crore.
The senior DoT official said the two entities would now appraise the Registrar of Companies (RoC) of the various approvals received, wrapping up the last leg of formalities.
The approval comes with the riders that the merged entity would have to abide by the decisions of the telecom tribunal and other courts.
Kumar Mangalam Birla would be the non-executive Chairman and Balesh Sharma the new CEO of the merged entity, which would remain listed.
Industry watchers said that the combined entity might breach the stipulated subscriber threshold in select telecom circles but would have an year's time to address the issue.
Shares of Idea Cellular closed 3.64 per cent higher on BSE at Rs 56.95 a piece.
On Wednesday, Vodafone Group CEO Vittorio Colao had said that the company expects the merger to close in August.
"In India, where competition remains intense, we have now received conditional approval from the Department of Telecoms for the merger of Vodafone India and Idea Cellular, which we aim to close before the end of August, allowing us to unlock substantial synergies," Mr Colao had said.