Vodafone to sell 9.5% additional stake to Aditya Birla after merger

Vodafone has agreed to sell 9.5 per cent additional stake to Aditya Birla Group for ₹130 per share after they merge their telecom operations to create the country’s largest operator worth more than $23 billion.

Aditya Birla Group (AB Group) has filed the composite scheme of amalgamation between Vodafone and Idea Cellular with the BSE, which states that the merged entity shall be under the joint control of the two firms, and will be governed by the shareholders’ agreement.

In the merged entity, Vodafone will hold 50 per cent stake, while Aditya Birla Group will hold 21 per cent. Upon completion of merger, Vodafone will transfer 4.9 per cent shares of merged entity to Aditya Birla Group for ₹3,874 crore.

Post such transfer, the AB Group shareholding will increase to 26 per cent and Vodafone shareholding will reduce to 45.1 per cent, according to the scheme. The remaining 28.9 per cent will be held by other shareholders.

Also, AB Group will have the right to acquire more shares from Vodafone at a price of ₹ 130 per share, in order to equalise the shareholdings over 4 years.

If equal shareholding is not achieved within four years, Vodafone will sell down its shareholding to equalise its shareholding with Aditya Birla Group over the following 5 years, the scheme said.

Until equalisation, the voting rights on additional shares of Vodafone shall be exercised jointly by Vodafone and Aditya Birla Group.

The two firms had, last month, announced merger of their telecom operations in India to create the country’s largest mobile phone operator with a 35 per cent market share.

The combined entity of Vodafone and Idea Cellular, which are India’s number two and three mobile players respectively, will overtake Bharti Airtel and will be in a better position to take on a raging price war unleashed by newcomer Reliance Jio in the world’s second-largest market.

The new company, which will come into being over the next two years, will be headed by Kumar Mangalam Birla, while Vodafone will have the right to appoint the Chief Financial Officer.

The CEO and the Chief Operating Officer will be appointed with the approval of both companies. The two firms will have three nominees each on the board of the new entity, the scheme said.

Vodafone’s deconsolidation

The merger excludes Vodafone’s 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone, which will result in Vodafone deconsolidating Vodafone India.

This mechanism will facilitate reducing Vodafone Group net debt by ₹55,200 crore and lowering Vodafone Group leverage by around 0.3x net debt/EBITDA, the scheme added.

Vodafone-Idea is the second merger in the sector to be announced this year. In February, Bharti Airtel unveiled plans to buy the Indian business of the Norway-based Telenor.

The merged venture will create India’s largest mobile operator with almost 400 million users and a 35 per cent market share by customers. The deal gives Vodafone India an implied enterprise value of ₹ 82,800 crore and Idea, an enterprise value of ₹72,200 crore.