Wednesday, March 22, 2017

Story of Vodafone India and Idea Cellular merger

The conversation for the merger had started last year, when a three member team of Aditya Birla Group had gone to met Vodafone in London according to media report but it had stopped without any conclusion.
The both sides knew that the negotiations would be intense before reach out to any conclusion even as the competitive industry's dynamics were changing faster than anyone had ever foreseen. On those day only any merger could have salvaged the both companies.

Meanwhile Reliance Jio Infocom of Mukesh Ambani stormed the market with the free voice and data services in the last September and undermined the industry revenue that compell the both telecom to join hand and consolidate.

The Anil Ambani's Reliance Communication had already tied up with Aircel. Due to the many of the company coming with best data offer and lower call rate, an alliance or merger between the Vodafone and the Idea Cellular was seemed to have the only way out to compete with the market.

Though, the Vodafone and the Idea Cellular had started talks for the merger in 2016 but it had stopped, the talks turned serious around the beginning of this year as per media report. So this time getting the deal construct right was absolutely essential for both of the company.

The Vodafone and Idea Cellular had, on their own, tried to buy or merge the smaller operations or assets like spectrum from the Norway's Telenor or Videocon, but those talks were never fruitful.

The media had asked to the many offcials, advisers and the lawyers from both sides to know the story of the $22 billion talks but nobody disclose any story.

When you are trying to merge and create a new operation bigger than AT&T's it is not easy task. Even the task become more difficult when one is bigger than the other. The Vodafone India, as per media, is the bigger than Idea in the total revenue.

The Vodafone and Idea also had their own conditions to make the deal value-acrretive for the shareholders of both companies. To fulfill their value, the deal had to be a merger with the equal rights.

The Idea Cellular wanted a minimum of 26% in the new company and also a chairmanship for Kumar Birla and the Vodafone too wanted to deconsolidate its operation in India. The Vodafone had invested over $30 billion in India since 2007 but its experience has been hamstrung with the retrospective tax charges.

The both companies initially planned to merge the two wireless operations, just like the RCom and the Aircel had done, but it was not practical and had been rejected too.

In the initial days of talks both the companies had their own pre-conditions, specially the stake in the Indus Tower in which Vodafone had 42% share, because of that the constuctive deal took time that followed 4-5 days of the intense brainstorming between the both companies.

The finanaicl gap between the both companies has been shrinking in the past few months and only 10% gap in the EBITDA(earnings before interest, tax, depreciation & amortisation) between two companies had remained.

The Idea has been growing faster in the market and its margins have also significantly improved as per media report.

Once the pre-conditions and the Indus Tower related issue settled, the rest of the talk fell into the place quickly.

The news about merger came in the media in the mid-January that forced both companies to make a joint statement, acknowledging the ongoing talks.

The core team of both companies met several times to take the talk forward. Both companies had also included their advisers, laywers, bankers, executives in their core team.

Once the both companies agreed upon their conditons, Vodafone and Idea engaged external advisers Morgan Stanley, UBS, Robey Warshaw, Bank of America Merrill Lynch, Kotak Investment Bank and Rothschild; lawyers S&R Associates to begin the work on the documentation for the merger.

The operations team from both the companies were roped in and the due diligence began for the merger. The human issues are the most sensitive in a merger, so it is necessary to involve them at the right time.

The Vodafone India and the Vodafone Group executive committee member met on 15th March, 2017 to review the preparedness and the operational issues with regard to integration. The following day, the Vodafone India board met in Mumbai to further discuss the merger of both companies.

The Vodafone Group CEO Vittorio Colao and his team on Sunday the 19th March, 2017 met Kumar Birla and his deal team at their Worli headquarters to iron out the final deal.

The main key issue, like naming the CEO, COO and the CFO, was still to be sorted out. They finally reach on the conclusion that Thomas Reistien, CFO of Vodafone India, Balesh Sharma, Vodafone India's COO would continue in his role in the new entity. As for as the CEO for the new entity, they agreed on a candidate but did not announce the name as yet.

As the meeting rolled on till the evening on Sunday, the Kumar Birla immediately meet and brief some of his board members. The Idea board meet again in the morning on Monday, 20th March, 2017 to announce the merger to his board members.

Finally the Vodafone Group and Idea Cellular announced the merger in a joint press conference in Mumbai on Monday the 20th March, 2017 to form the India's largest telecom.

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