vodafone idea share case study

Vodafone Case Study

Introduction.

Vodafone Case study describes the situation when  Idea Cellular and Vodafone after the entrance of JIO. So, here is the Vodafone case study which describes the position of Vodafone and Idea Cellular before and post-merger, reasons for the merger, how did merger take place and critical analyses of the merger.

About Vodafone 

Vodafone company came from the UK based Vodafone Group plc. It is a multinational service provider of telecommunications in 22 different countries as of 20th November 2020. And, in India Vodafone has its headquarter in Mumbai, Maharashtra. Vodafone is the third largest telecommunication provider in the country. Vodafone

At the beginning of the year, 1992 Vodafone started its company in India from Bombay(now Mumbai). After the entry of JIO in the year 2016. Afterwards, our Vodafone case study begins, Vodafone and Idea announced their merger in March 2017. And as of 31st August 2018, it is known as Vodafone Idea Limited.

Vodafone Idea Merger Case Study

Vodafone case study explains the reason and the situation of the merger of Vodafone and Idea. This merger was first announced in March 2017. Afterwards, in July 2018, the department of telecommunication gave the approval for the merger. Finally, on 31st Aug 2018, the merger was completed and it is announced as Vodafone Idea Limited.

And this merger was the largest telecom merger in India. As per this merger, Vodafone holds a 45.2% stake, Aditya Birla Group holds 26% and the remaining stakes were held public. So, to understand the Vodafone case study, let’s understand the reasons for the Vodafone Idea merger case study.

Reasons For Vodafone Idea Merger

So, while understanding the Vodafone case study lets us understand the reason for the Vodafone Idea merger. 

• The main reason for the Vodafone-Idea merger is to Handel 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.
• Secondly, 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. 
• At last, the combined entity of Vodafone and Idea was expected to hold a strong position in the industry . Such as in some circles it became the largest cellular service provider and in some circle, it was the second-largest after Bharti Airtel. So, a joined company can focus on being the service provider in pan India.

So, these were the reasons in Vodafone case study for the merger of Vodafone and Idea.

Vodafone Idea Integration

According to the past in the telecom industry, major telephone operators believes the merger is a strong tool to be in the lead position. As Airtel acquires the Telenor, it acquires the scope and business from other small telecommunication companies like Augere Wireless, Videcon, Tikona(4G Spectrum) etc. 

Also, Reliance Communication (R Com) merged with Aircel and acquire MTC. Plus the Tata Telecom also started the process of merging with R Com. As a result in a period of seven months telephone operators numbers went down to seven from twelve.

However, the announcement of the merger creates a negative image in the public, when the Vodafone and Idea merger was announced the Idea prices started to drop . And the share price of Idea declines from Rs. 97.70 on 20th March 2017 to Rs. 81.81 on 6th Sep 2017.

But the merger was important it gave support to the two companies, which were struggling to survive in the industry. Combined resources will help to compete with only the two biggest brands(Jio and Airtel).

So, these were the challenges of Vodafone and Idea merger in case of Vodafone case study.

Critical Analysis Of Vodafone Case

The merger of Vodafone and Idea in Vodafone case study gave higher stakes to the Idea promoters as compared to Vodafone. So, in long run, both companies can gain access to equal shares in the future. 

Here are the few takeaways from the Vodafone Idea merger in Vodafone case study: 

• The very first thing was the acquisition of 4.9 per cent shares of Vodafone by Aditya Birla . This would amount to a total of Rs. 3874 crore wherein each share is worth Rs. 108 . This would be helpful in increasing the shareholding capacity of Idea to 26 per cent .
• While in the case of Vodafone case study, Vodafone holds 45.1 per cent of the shares in the merger, Idea would be allowed to buy another 9.6 per cent but at a cost of Rs. 130 per share in the period spread over the next four years. However, if Idea is unable to come up equal to the shareholding percentage of Vodafone, it can go forward and buy the number of shares required further but at the price prevailing in the market.
• And, the chairperson of the newly formed enterprise would be Kumar Mangalam Birla . On the other hand, Vodafone had appointed the Chief financial officer . As, after that new CEO was named under both the companies.
• Lastly, the promotors of both entities have the right to nominate three members for the board . Also, there are 12 members out of which 6 are independent on the board in the Vodafone case study of Vodafone and Idea merger. 

Idea Positioning Before Merger

In Vodafone case study of Vodafone and Idea merger, now lets understand the Idea Cellular Limited is an Aditya Birla Group company. Founded in 1995, the company was incorporated as Birla Communications Limited and had a license of GSM-based services in Gujarat and Maharashtra Circle. In the following years, the organization started to expand its business with Tata Group, Birla and AT&T group of the US in joint venture form. 

In August 2015, Idea announced the rollout of its 4G services. It was now competing with Airtel and Vodafone – in a non-monopolistic market. The company relaunched its “What an Idea” campaign taking 4G to the rural areas and empowering people through the usage of 4G services.

But in the year 2016 sudden announcement from Mukesh Ambani about Reliance Jio disrupted the Indian telecom sector. Below pie chart shows the market share of different telecom players before the entry of Jio.

As the Indian market is very sensitive towards price and Jio used it to make most of the profits. So, Jio started to make its all services free for the first six months. Afterwards, they made the services of voice calls, data extremely cheap. As a result, JIO captured a significant share of the telecom industry. Here is the pie chart of the post-Jio market share of various telecom players.

Vodafone Idea Merger

This transaction required various approvals from government authorities including SEBI, dept. of Telecom and Reserve Bank of India among others. The Department of Telecommunications (DoT) has given the green signal for the merger of Vodafone India and Idea in our Vodafone case study, the largest Merger and Acquisition agreement in the sector, which has displaced Bharti Airtel from top position after over 15 years. The approval conditions, which were given over a year after the agreement, were announced in March 2017 which included an advance payment of Rs 7,268 crore. 

Idea Contributon

Promoters Aditya Birla Group infused Rs 3,250 crore in Idea Cellular , which separately raised Rs 3,000 crore ahead of a planned merger with Vodafone India. Following the equity infusion by Idea’s promoters, their stake in India’s third-largest telecom operator rose to 47.2% from 42.4% now. Idea contributed its assets which included standalone towers with 15,400 tenancies and a stake in Indus towers Ltd of 11.5%. 

The entry of Reliance Jio Infocomm Ltd in September 2016, with free services for almost seven months and cheap tariffs, had eroded margins and impacted the revenue of rivals. The contribution of Vodafone will be Vodafone India along with standalone towers with 15,400 tenancies without including an 11.5% stake in Indus Towers. According to the agreement between Idea and Vodafone.

Vodafone will contribute more amount of net debt, about Rs 2,480 crore than Idea at the completion of the merger. Post-termination of both companies, the combined entity will be a joint venture between Vodafone and Idea in the Vodafone case study. Which will account for the under the equity method, controlled by both Aditya Birla Group and Vodafone.

Idea promoters hold the rights to acquire a 9.5% additional stake from Vodafone under the agreed deal to equalize shareholdings over time as per the following proposition

Vodafone: 45.1% – 9.5% = 35.6%

Idea: 26% + 9.5% = 35.6%

Impact of Merger on Telecom Industry

There are also several other implications that this merger of Vodafone case study will bring forth on the telecom industry.

1. Firstly, there can be initiatives based on the renewal of price discipline for the disruptive entry by Jio has caused some serious misbalance

2. Secondly, the poor financial health of the telecom sector can be observed. And through such mergers, there will be an infusion of health and life. Since India is the fastest-growing market in terms of subscriber base .

3. Through the merger, Vodafone and Idea will overcome their debts and a large sum of credit will be infused into the system

4. The deal has also saved both the telecom companies from selling off their business . As was being planned by them initially and this would directly impact the quality of services being provided by different players in the industry

The merger in the Vodafone case study will surely boost the pace of the telecom sector. It has also been found that the savings, synergies and also the spectrum will have a substantial impact on the escalating growth. 

There will be a saving of over 60 per cent of the cost of the operation and this will aid in improving the quality and performance of the service through investments from the saved money.

Enhancement in network infrastructure will be observed while the operational efficiencies have a chance to reach excellence. Moreover, the revenue market share is expected to rise for all the locations and the spectrum of the entity would exceed the initial caps.

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Merger of Vodafone India and Idea: creating the largest telecoms operator in India

Key highlights

Vodafone to combine its subsidiary Vodafone India (excluding its 42% stake in Indus Towers) with Idea, which is listed on the Indian Stock Exchanges.

• Highly complementary combination will create India’s largest telecoms operator1 with the country’s widest mobile network and a strong commitment to deliver the Indian government’s ‘Digital India’ vision.

Sustained investment by the combined entity will accelerate the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies, support the introduction of digital content and ‘Internet of Things’ (IoT) services as well as expand financial inclusion through mobile money services for the benefit of Indian consumers, businesses and society as a whole.

Merger of equals with joint control of the combined company between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement.

• The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is INR828 billion (US$12.4 billion) for Vodafone India and INR722 billion (US$10.8 billion) for Idea excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA2.
• Substantial cost and capex synergies with an estimated net present value of approximately INR670 billion (US$10.0 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of INR140 billion (US$2.1 billion) on an annual basis by the fourth full year post completion3.

Vodafone will own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for circa INR39 billion (circa US$579 million) in cash concurrent with completion of the merger. The Aditya Birla Group will then own 26.0% and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.

If Vodafone and the Aditya Birla Group’s shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement.

• Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post- closing, reducing Vodafone Group net debt by approximately INR552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA4. The transaction is expected to be accretive to Vodafone’s cash flow5 from the first full year post-completion.

The transaction is expected to close during calendar year 2018, subject to customary approvals.

Highly complementary combination will create India’s largest telecoms operator 1 with the country’s widest mobile network and a strong commitment to deliver the Indian government’s ‘Digital India’ vision.

The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is INR828 billion (US$12.4 billion) for Vodafone India and INR722 billion (US$10.8 billion) for Idea excluding its stake in Indus Towers, valuing Vodafone India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA 2 .

Substantial cost and capex synergies with an estimated net present value of approximately INR670 billion (US$10.0 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of INR140 billion (US$2.1 billion) on an annual basis by the fourth full year post completion 3 .

Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post- closing, reducing Vodafone Group net debt by approximately INR552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA 4 . The transaction is expected to be accretive to Vodafone’s cash flow 5 from the first full year post-completion.

Aditya Birla Group Chairman, Kumar Mangalam Birla, said:

“Throughout its history, the Aditya Birla Group has been synonymous with the task of nation building and driving inclusive growth in the country. This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the Government’s Digital India vision a reality. For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”

Vodafone Group Plc Chief Executive, Vittorio Colao said:

“The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India. The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian. We look forward to working with the Aditya Birla Group to create value for all stakeholders.”

For further information

Vodafone Group, Media Relations www.vodafone.com/media/contact

Investor Relations Telephone: +44 (0) 7919 990 230

Idea Cellular Limited Tel: +91 22 95940 03439

Investor Relations email: [email protected]

About Vodafone Group

Vodafone is one of the world’s largest telecommunications companies and provides a range of services including voice, messaging, data and fixed communications. Vodafone has mobile operations in 26 countries, partners with mobile networks in 49 more, and fixed broadband operations in 17 markets. As of 31 December 2016, Vodafone had 470 million mobile customers and 14.3 million fixed broadband customers. For more information, please visit: www.vodafone.com

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Flexibility, Innovation, and Sustainable Business pp 169–181 Cite as

A Study of Merger and Acquisition and Its Impact on Profitability Performance of Selected Merger (With Reference to Vodafone Idea Merger)

• Suruchi Satsangi 12 &
• Prem Das Saini 12  
• First Online: 23 August 2022

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Part of the book series: Flexible Systems Management ((FLEXSYS))

Mergers and acquisitions are vital choices taken to boost an endeavor's blast through improving its assembling and promoting tasks. They are adopted to use and gain advantage power, expand the purchaser base, cut competition or enter into a brand new market or product section. When globalization of the Indian financial system was started in 1991, it was believed that it would suggest foreigners were not the handiest doing enterprise in India but additionally taking over Indian organizations. The objectives are to review the case of Vodafone-Idea related to M&As and analyzing its before- & after- performance of the company and its impact on the basis of profitability performance of the selected companies. The study is based on an analytical research. The data are taken from secondary sources from several websites. The time period of the study is two-year pre & two-year post of the selected companies. The base year is considered as zero. To analyze the profitability performance, ratios and t test has been used as a tool for further analysis of the paper.

• Acquisition
• Telecom sector
• Profitability
• Globalization

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Bedi, A. (2018). Post acquisition performance of indian telecom companies: An empirical study. Pacific Business Review International , 56–62.

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Jiang, J. (2019 ). An empirical study on M&A performance: evidence from horizontal mergers and acquisitions in the United States. Open Journal of Business and Management , 976–997.

Poddar, N. (2019). A study on mergers and acquisition in india and its impact on operating efficiency of indian acquiring company. Theoretical Economics Letters , 1040–1052.

Satyanarayana, D., Rao, D., & Naidu , D. (2017). The impact of reliance jio on Indian mobile industry a case study on mergers and acquisitions of idea—Vodafone and Airtel—Telenor. International Journal of Applied Research , 209–212.

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Satsangi, S., Das Saini, P. (2022). A Study of Merger and Acquisition and Its Impact on Profitability Performance of Selected Merger (With Reference to Vodafone Idea Merger). In: Anbanandam, R., Rangnekar, S. (eds) Flexibility, Innovation, and Sustainable Business. Flexible Systems Management. Springer, Singapore. https://doi.org/10.1007/978-981-19-1697-7_12

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With a population of 1.38 billion people, India has one of the largest telecom markets in the world. Up until 2016, there were more than a dozen telecom service providers operating in the country.

But in 2016, a new provider entered the marketplace, causing major disruption to the telecom market and triggering massive changes, including increased competition and price wars.

To adapt to these changes, two of the top telecom providers in the country—Vodafone India and Idea Cellular—decided to merge to become Vodafone Idea Limited (Vi). According to Vineet Chauhan, Vice President and Head of Digital Technology at Vi, the two businesses decided to embrace the market changes. “It was a great opportunity to serve more and more customers through our ever-improving network, best-in-class data speeds, and great products and services,” he says.

A merger of this size was unprecedented. The two companies needed to consolidate without significantly disrupting operations or service to customers. At the same time, Vi wanted to execute on its vision of becoming a digital-first company.

Rapid growth

A new digital retailer app platform adds 7 million subscribers per month

Revenue management

The digital retailer app is used to manage revenue of USD 200 million each month

Vi had a long history with IBM, so it turned to IBM® Consulting to help plan and execute its massive digital transformation and its consolidation and integration projects. “We partnered with IBM to drive digital transformation at the scale that we needed to,” says Chauhan. “And in this partnership with IBM, our three pillars are trust, transparency and agility.”

A key component for the merger was digital transformation. “We set out to transform ourselves,” says Chauhan. “As a digital-first organization, we wanted to make sure that we delight consumers at every touchpoint, every time. We have the kind of products and offerings that are innovative, personalized, contextual and relevant.”

Working alongside IBM, Vi created a “digital factory” to help transform the various Vi digital properties, including websites, mobile apps and new digital platforms. As it rolled out the new Vi brand, the company launched these new websites and mobile apps during the day with zero downtime. “Our consumers use the website for information, to subscribe or to recharge their prepaid phone,” says Chauhan. “Our postpaid subscribers come and make a bill payment. And we can present exciting offers. So, we turned all these functions around and we were seamlessly able to transition into the new brand.”

The digital transformation enabled new digital platforms for Vi’s channel partners. Vi worked collaboratively with IBM in the digital factory to launch several first-of-a-kind solutions, such as a new digital retailer mobile app platform supporting contactless recharges and contactless UPI-based balance transfers. Using the digital retailer app, customers can recharge their prepaid phone easily while maintaining the social distancing required for COVID-19 safety. In addition, distributors can make contactless UPI-based balance transfers, so retailers can always get the recharges they need without requiring representatives to travel to retail locations.

These initiatives help some 300 million Indian citizens stay connected, without any issues, during the COVID-19 pandemic. With the new digital retailer app, Vi is gaining seven million new subscribers per month and managing monthly revenue of USD 200 million. Plus, the company launched a new digital sales acquisition platform, driving a 100% increase in digital acquisitions in three months.

Nirupmay Kumar, Executive Vice President of Technology at Vi, oversaw integration strategy, solution design and demand management for enterprise and consumer business during the consolidation and integration projects. “We interacted very closely with IBM to identify our business requirements and to determine how to design the systems,” says Kumar. “IBM also helped us detail all of our requirements to make sure that nothing was missed.”

Kumar and his team handled the job of consolidation design of the IT systems from both Vodafone and Idea. “So the challenge was how to identify the right set of applications that can support double the subscriber base, along with future growth and functionalities,” says Kumar. This was no easy task, considering the size and IT landscape maturity of the two companies. “IT Transformation project for a telecom company is like changing the engine while the flight is in the air, you have to upgrade with minimal or no downtime” says Kumar.

As Kumar and his team worked with IBM to determine which enterprise applications could best support the newly merged organization, they found at times that the best choice was to transform an existing system rather than consolidating. And in some cases they created new functionality. In the past, neither company had a digital platform for the enterprise consumer, so Vi and IBM created a new digital platform to provide self-service options to Vi enterprise customers. In fact, the Vi enterprise digital platform won five awards at the prestigious ICMG Architecture Excellence Awards competition. The new enterprise digital platform has delivered a 35% increase in payments, a 60% growth in customer self-servicing and a 70% rise in new customer registrations in one year.

Sanjeev Vadera, Vice President and Head of Integration Program Management at Vi, handled consolidation and operations for the consolidation and integration projects. Part of the consolidation program involved moving many applications and services to a virtualized cloud to reduce the cost of ownership. “In the back of our minds, we were always looking for ways to move to the cloud as much as possible,” says Vadera. “We did a lot of virtualization as well.” The IBM and Vi team successfully executed 32 parallel transformation programs within just 18 months. These projects impacted nearly 300 million customers (or approximately one in every four Indian citizens) and two million channel partners across more than 700 business processes.

Although the consolidation and integration program was originally projected to take three to five years, Vi was able to complete it within 24 months with help from IBM. The company also completed the digital transformation with minimal impact on its consumers. “For the majority of our consolidation projects, we ensured that there was zero customer impact,” says Vadera. “With IBM’s help, we did iterations of mock migrations to create the strategies for how we can reduce downtime.”

In total, Vi and IBM consolidated more than 350 applications down to approximately 200. In addition, the teams migrated 140 applications from three data centers to one data center. Ultimately, the project will result in the consolidation of four data centers into one. Through this consolidation, Vi has saved USD 600 million so far.

In addition, IBM is helping Vi with its network domains. Vi collaborated with IBM to deliver its first major production milestone for core network functions on its open universal hybrid cloud, powered by IBM and Red Hat. The platform enables IT and network applications to run on a common cloud architecture, which is designed to deliver ROI improvements through the optimization of CapEx, OpEx, skills and automation investments across both the network and IT application domains. The hybrid cloud is based on open technology and open standards from IBM and Red Hat, and it delivers a wide range of capabilities, including IBM Watson® AI and the Red Hat® Ansible® Automation Platform (link resides outside ibm.com), which can help strengthen Vi’s capability in network and IT planning.

Vadera and his team also teamed with IBM to implement the Big Data Lake program at Vi. The Big Data Lake program is one of the biggest open-source-based data lakes implemented globally in a telecom company. “The business analytics and intelligence needs for the new company needed to be very different from the existing tools and applications used by Vodafone and Idea, so we decided build a completely new system,” says Vadera.

The launch of the new Big Data Lake data platform has delivered significant value to Vi. “The program has brought immense business benefits to Vi, with close to a 40% cost reduction and a 60% reduction in operational complexity,” says Aditya Ghosh, Associate Vice President of IT for Analytics at Vi. “We’re going to be ahead of the curve with a future-ready, modern and open-source platform.”

The new data platform, which replaced two existing data warehouse platforms, processes over 15 billion records per day, creating more than 2,000 business KPIs daily. The data lake is a massive 10-petabyte platform. It’s helping Vi take the next big step into the AI domain, with the implementation of major AI- and machine-learning-related use cases for network experience improvements, new planning and customer experience improvement.

According to Himanshu Jain, Senior Vice President at Vi, the partnership with IBM was key to the success of the project. “IBM brings robust governance framework, agility to scale up and domain expertise to the table,” he says. “And IBM has really helped us digitize our organization during challenging times due to COVID-19.”

Vi anticipates that it will continue to work with IBM to achieve its goals. “Now we have a very strong platform that we can use as a springboard for more innovation, more features,” says Kumar. “Our relationship with IBM is growing day by day, and I look forward to working with IBM as a trusted partner for many years to come.”

Vi  (link resides outside of ibm.com) is one of the leading telecom providers in India. The company serves approximately 300 million subscribers across more than 480,000 towns and villages throughout India. In addition to having the largest telecom network in India, Vi provides pan-India voice and data services across 2G, 3G and 4G platforms. It is headquartered in Mumbai and Gandhinagar and reported revenue of USD 6.4 billion in 2020.

To learn more about the IBM solutions featured in this story, please contact your IBM representative or IBM Business Partner.

© Copyright IBM Corporation 2021. IBM Corporation, IBM Consulting, Orchard Road, Armonk, NY 10504

Produced in the United States of America, June 2021.

IBM, the IBM logo, ibm.com, and IBM Watson are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names e trademarks of IBM or other companies. A current list of IBM trademarks is available on the web at “Copyright and trademark information” at  ibm.com/legal/copyright-trademark .

Red Hat® and Ansible® are trademarks or registered trademarks of Red Hat, Inc. or its subsidiaries in the United States and other countries.

This document is current as of the initial date of publication and may be changed by IBM at any time. Not all offerings are available in every country in which IBM operates.

The performance data and client examples cited are presented for illustrative purposes only. Actual performance results may vary depending on specific configurations and operating conditions. THE INFORMATION IN THIS DOCUMENT IS PROVIDED “AS IS” WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NON-INFRINGEMENT. IBM products are warranted according to the terms and conditions of the agreements under which they are provided.

The Legal Lock

MAKING LAW SIMPLE!

Mergers and Acquisitions: Case Study of Vodafone Idea Merger

By: Vaidehi Sharma

Introduction to mergers and acquisition  

‘Mergers and acquisitions’ is a technical term used to define the consolidation of two or more companies. When two companies are combined to form one unit, it is known as a merger, while an acquisition refers to the buying of one company by another one, which means that no new company is formed, only one company has been absorbed into another. Mergers and Acquisitions are an important component of strategic management, which comes under the head of corporate finance. The subject concerns buying, selling, dividing, and combining various companies. It is a  type of restructuring to have rapid growth and increase profitability. 

Mergers and acquisitions are part of the strategic working of any business or working group. It involves the joining of two businesses with the object to increase market share and profits and to have an influential impact on the industry. Mergers and Acquisitions are complicated processes that require preparation, analysis, and deliberation. There are a lot of parties who might be affected by a merger or an acquisition but before a deal is finalized, all parties need to be taken into consideration, their concerns should be addressed, and all possible hurdles that can be avoided must be avoided. 

The term ‘Merger’ has not been defined under the Companies Act, 2013 or  Income Tax Act, 1961 , but as a concept ‘merger’ is a combination of two or more entities into one; with the accumulation of their assets and liabilities, and coming together of the entities into one business. 

The other word for Merger is ‘Amalgamation’. Under The Income Tax Act, 1961  (ITA) ‘amalgamation’ is defined as the merger of one or more entities with another company, or the merger of two or more entities forming one company. It also mentions other conditions to be satisfied for an ‘Amalgamation’ to benefit from the beneficial tax treatment. 

For example -A company called and a company called B merge to form a new company called C . This is called a merger. 

The effect of the merger is that the assets and liabilities of both companies will now be shared and they will cease to exist as independent companies . 

Benefits of Mergers 

⮚ Profit and resource sharing – The resources of both companies are pooled together which increases the profit outcome.

⮚ Access to New Markets – Entering into new markets can be challenging for any company even for established companies. While setting up a subsidiary  or branch is always an option, a merger or acquisition can save companies a  significant amount of time, effort, and money compared to starting from  scratch  

⮚ More Economic Strength and Competitive Edge – mergers and acquisitions mean financial strength for both companies. It can help them to become more powerful in the market, attract more customers and create more resources. 

⮚ Powerful Human Resource -The biggest asset any company can hold is its employees. A skilled and effective stall generates a lot of profit for the company. Therefore in mergers and acquisitions, the human resources of both companies are pooled together. 

⮚ Better infrastructure and Fixed Capital -In mergers and acquisitions the resources of both companies are shared which means access to better infrastructure for the poor company. Big machines and other resources can also be used up for better production. 

Mergers and acquisitions in the telecom industry in India 

Introduction  .

India is currently ranked as the world’s second-largest telecommunications market with more than 1.20 billion subscribers and has shown strong growth in the past one and a half decades. 

The Indian telecom industry is growing at a rapid pace. In 2020-2021 the telecom industry contributed 6% to India’s Gross Domestic Product (GDP). The telecom  sector is set to grow at a Compound Annual Growth Rate (CAGR) of 9.4% from  

2020 to 2025. However, with a CAGR of 15.9% throughout the forecast period, the smartphone industry in India will have the fastest growth. By 2025, India’s digital economy will be worth $ 1 trillion. 

The industry has increased primarily due to favorable regulatory conditions, low prices, increased accessibility, and the introduction of Mobile Number Portability  (MNP), expanding 3G and 4G coverage, and changing subscriber consumption patterns. The deregulation of Foreign Direct Investment (FDI) rules has made the telecom sector one of the fastest-growing sectors in the country and a huge means of employment opportunity generator in the country too.

The subsectors of the telecommunication sector include infrastructure, equipment,  Mobile Virtual Network Operators (MNVO), white space spectrum, 5G, telephone service providers, and broadband. 

It is predicted that 5G technology will boost the Indian economy by $ 450 Bn between 2023 and 2040. According to the Global System for Mobile  Communications (GSMA), there is an excellent opportunity for investment in this sector as India will have almost one billion installed smartphones by 2025 and 920  million unique mobile customers, including 88 million 5G connections. 

Importance of the telecom industry  

The importance of the telecommunication industry is highlighted by the fact that it enables global communication. The relevance of this industry has increased significantly after the pandemic. Services offered by this industry are more frequently used since it allows for a continued virtual connection. The smartphone market will continue to increase as more people are expected to purchase them in the coming years. Given that government reforms have eliminated ambiguity and risks and established a stable investment environment, India’s telecom sector is projected to receive investments totaling $ 25.2 Bn over the next two years. 

Mergers and acquisitions in the telecom industry  

The recent trend of mergers and acquisitions can be widely seen in the telecom sector too. This recent trend in the world of the telecommunications market has been caused by the ongoing regulatory liberalization and privatization of the industry.  These changes have brought about fierce competition and ensuing decreases in profit in both the domestic and international telecommunications service markets. 

Mergers and acquisitions in the telecom sector are considered to be horizontal mergers because both companies deal in the same line of business. In the majority of developed and developing countries, mergers and acquisitions in the telecommunications sector have increased which also resulted in the creation of jobs. 

The legal Framework of Mergers and Acquisitions in the telecom sector  

• ⮚ National Telecom Policy formed in 2012 hasimplifiedde M&A in Telecom  Service Sect, ensuring adequate competition and allowing  100% FDI.
• ⮚ The merger in the case of licenses shall be done for the respective service category. Access to service license allows the provision of internet service and so the merger of ISP license with services license shall also be  
• permitted. 
• ⮚ In a service area, the market share of the merged entity should not be more than 50%. If it is more, it has to reduce it below 50% in an annum. 
• ⮚ The total spectrum held by the merged entity should not be more than 50%  in a service area. If it is excess, it has to be surrendered within an annum. 
• ⮚ The corporation which acquires will have to pay the difference between the market price determined in the auction & the administrative price if an acquired company has got spectrum after paying the administrative price. 
• ⮚ If due to a merger or transfer of license in any service area business,  corporation or entity becomes an important market power, then TRAI’s  Telecommunication Act of the year 2002 will come into place. 

Case study – Merger of Vodafone and Idea 

History of both the companies  , history of the merger  .

In March 2017, it was announced that Idea Cellular and Vodafone India would merge. The merger got approval from the Department of Telecommunications in July 2018. On 30 August 2018, National Company Law Tribunal gave the final nod to the Vodafone-Idea merger. It was completed on 31 August 2018, and 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. 

Reasons for Merger of Vodafone and Idea   

Dominance over the market by JIO- The main reason for the merger of Vodafone and the idea was the dominance of the Jio company. The companies saw a major downfall as Jio announced free internet services for the first 6 months. As a result price war began between companies. the companies began to see losses, and as a result, a merger between Vodafone and Idea happened. 

Key takeaways  

• ⮚ Under the plan submitted to Indian regulators, Vodafone will initially hold a  50 0% stake in the combined entity, while the Aditya Birla Group and public shareholders will hold 21.1% and 28.9%, respectively. Vodafone will then divest a 4.9% stake to the Aditya Birla Group, which would increase the latter’s stake from 21.1% to 26%, thus crossing the threshold for an open offer. 
• ⮚ Vodafone and Idea had individual spectrum holdings of 411 MHz and 316  MHz respectively. The amalgamation of the companies would give, it was expected, the merged company a hold of 728 Mhz increasing the chances of the merged company to rank number one or two in India. 
• ⮚ The merger ratio was 1:1. This ratio was based on the price of Idea at 72.5  per unit. Implied enterprise value for Idea and Vodafone was INR 72  thousand crores and INR 82 thousand and 8 hundred crores respectively.  The agreement had a break fee of Rs 3,300 crore payable upon certain conditions. 
• ⮚ Aditya Birla also has the right to acquire up to 9.5% additional shareholding from Vodafone Group throughout three years post-closure of the deal for an agreed price of INR 130 per share. But these rights by Aditya Group will be exercised based on the growth achieved and the market price of the combined entity .
• ⮚ Idea and Vodafone will have joint control over the appointment of CEO and  COO, the exclusive rights to appoint a CFO is with Vodafone. So Vodafone is not just a major shareholder but also has more financial rights. 
• ⮚ If at the end of 3 years, Aditya Birla Group fails to purchase any stakeout of the additional stake of 9.5%, then they will be given the last opportunity to purchase the stake at the prevailing market price for share equalization. 
• ⮚ Vodafone contributed net debt of Rs 55,200 crore to the merged entity,  whereas Idea contributed Rs. 52,700 crore. Vodafone contributed net debt of Rs. 2,500 crore more than Idea . 
• ⮚ In 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. 
• ⮚ In the financial year 2022, Vodafone Idea Limited earned revenue of 386.5  billion Indian rupees.

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The Vodafone Idea merger case study

Everyone is well aware that JIO entered the Indian market with a bang. This led to the merger of two of India’s telecom industry giants, Vodafone and Idea. So, we will have a look at the Vodafone-Idea merger case study which will include why did the merger happen, how did it happen, and the position of both companies post the merger. 

Let’s get started by getting to know Vodafone as a company. 

The parent company of Vodafone is a UK-based multinational service provider of telecommunications called Vodafone Group plc. It has a network in over 20 different countries. When the company entered the Indian market in 1992, it set up its headquarters in Mumbai, Maharashtra, and became, arguably, one of the biggest telecommunication providers in the country. We are sure none of us can not forget the pug and the funny ZooZoos we used to see in their creative advertisements. 

You can also check this out Airtel v/s Jio, which is better in 2023

However, the company faced fierce competition in the year 2016 by JIO, as they provided free services for the first six months, and then charged a very minimal rate for good quality services. This gave JIO a leg up against the rest of the field and they were able to capture the majority of the market. So, in March 2017, Vodafone and Idea announced their merger, and on 31st August 2018, Vodafone Idea Limited or popularly known as VI was introduced. 

The biggest telecom merger in India saw Vodafone holding a 45.2% stake, the parent company of Idea, Aditya Birla Group holding 26% of the stake, and the remaining stakes were held public. 

As mentioned above, one of the main reasons why the Vodafone Idea merger took place was to handle and fight the dominance of Reliance Jio in the telecom industry, as its free services attracted almost everyone to get a sim card of their own. 

The free services also started a price war among all the players in the industry. As companies started to lower their prices to retain their customers and not lose them to Reliance Jio. This saw the profit margins of those companies simmer down. 

Vodafone and Idea, becoming a combined entity were expected to hold a strong foothold in the industry. This way it was able to become one of the largest service providers in certain sections and regions of the country. 

Even so, the merger did not fail to create a negative image of both companies in the eyes of the public. When the merger was announced, the share price from March 2017 was Rs.97.70, which declined to Rs. 81.81 by September 2017. The current share price of VI, as of 16th November 2022 is Rs. 8.40. 

However, despite the share price dropping substantially, the merger allowed both companies to receive the necessary support to compete with Reliance Jio and Airtel, which are the biggest names in the Indian telecom sector.

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Vodafone Idea gets board approval to raise Rs 2,075 cr from Aditya Birla Group

The telecom company's board approved the sale of up to 139.5 crore shares to oriana investments pte. ltd at a price of rs 14.87 per share.

The company also stated that its Board has approved an increase of the company's authorized share capital from the current Rs 75,000 crore, comprising Rs 70,000 crore of equity share capital and Rs 5,000 crore of preference share capital, to Rs 1 lakh crore.

Telecom company Vodafone Idea announced on April 6 that its Board has approved plans to raise Rs 2,075 crore from its promoter Aditya Birla Group.

Vodafone Idea said its Board has approved the issuance of up to 139.5 crore equity shares to Oriana Investments Pte. Ltd., an Aditya Birla Group entity, at an issue price of Rs 14.87 per share, including a premium of Rs 4.87 per share. This preferential issue, subject to shareholder approval in a General Meeting, is valued at Rs 2,075 crore.

"The Vodafone Idea board has approved "issuance of up to 1,39.5 crore equity shares of face value of Rs 10 each at an issue price of Rs 14.87 per equity share (including a premium of Rs 4.87 per equity share), aggregating to Rs 2,075 crore to Oriana Investments Pte. Ltd (Aditya Birla Group entity forming part of the promoter group), on a preferential basis," Vodafone Idea's filing said.

The relevant date for determining the floor price is April 8, 2024, the telecom company said.

The company also stated that its Board has approved an increase of the company's authorised share capital from the current Rs 75,000 crore, comprising Rs 70,000 crore of equity share capital and Rs 5,000 crore of preference share capital, to Rs 1 lakh crore.

Related stories

Under the proposed change, the increased authorized share capital will be divided into Rs 95,000 crore of equity share capital and Rs 5,000 crore of preference share capital, the telecom company said.

In its regulatory filing, the company also stated that it will seek shareholders' approval at an extraordinary general meeting scheduled for May 8 regarding these proposals.

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Vodafone Idea Limited Modernized Its SOC with Gurucul’s Identity- Driven Security Analytics

“It’s important to us to have both identity-driven and asset-driven involvement in our threat analytics.”

Company: Vodafone Idea Limited (Vi) Champion: Mathan Babu Kasilingham, Chief Technology Security Officer & Data Privacy Officer

Security Challenges:

Modernize the SOC and be able to trace security events to user involvement

Utilize security analytics to prioritize incident investigations

Customize machine learning models and use cases specific to Vi

Gurucul Results:

Gurucul correlates user activity with contextual information to vastly reduce time for investigations

Gurucul utilizes advanced technologies such as flexible machine learning models, generative artificial intelligence, and deep analytics to find threats more effectively

Gurucul risk scores prioritize threats to be investigated

“Looking at bringing out the involvement of users in security analytics was a core objective of our SOC modernization. Gurucul obviously provides that in a fairly turnkey manner for us.”

- Mathan Babu Kasilingham

Chief Technology Security Officer & Data Privacy Officer

Vodafone Idea Serves 250+ Million Customers Across India

Vodafone Idea (Vi) is the third largest telecom service provider in India. The company serves more than 250 million consumer accounts as well as large enterprise customers. Vi provides pan-India Voice and Data services across 2G, 3G, and 4G platforms.

Mathan Babu Kasilingham is Vi’s Chief Technology Security Officer & Data Privacy Officer. His responsibilities include providing a secure computing environment and upholding the privacy and essential protections for customers’ personal information. “I provide security and privacy assurances to our enterprise customers, our consumer-level customers, and to our internal users,” says Kasilingham.

SOC Modernization Was a Priority

One of his projects was to modernize the Security Operations Center. “We wanted to be able to look at security incidents in a different manner than we had been doing,” says Kasilingham. “We had been using a traditional SIEM to surface threats, but we wanted to be in a position to map events that were happening to the cyber kill chain, and to follow a framework like Mitre ATT&CK. We have to look at infiltration attempts, as well as exfiltration attempts. In both cases, when we map to the physical events that happen in a cyber incident, it is very important to analyze that there is always user involvement too. So, identity became a most important objective when we did the SOC modernization.”

Kasilingham had additional objectives in his search for a new security platform. “We wanted to be able to incorporate the advanced technologies that have emerged in this space, such as artificial intelligence, machine learning, and deep analytics,” he says. “How could we apply them to the overall security analytics platform?” Vi began an evaluation of Gurucul alongside several other platform vendors. They conducted pilot projects and proof of concept implementations of the contenders.

The Gurucul Platform Provides High Value

Kasilingham says one thing that became very clear during the Gurucul pilot is that the dashboard shows primarily true positive instances. “Gurucul minimizes the false positives and gives our analysts the ability to focus on the actual threats,” he says. “That eliminates time wasted on things that aren’t important.”

Several other capabilities make Gurucul stand out from the competitors. “The platform leverages a variety of machine learning and AI models that our analysts can put to use with relative ease,” says Kasilingham. “The platform already has various use cases that utilize the machine learning models, but we also have the ability to train the models ourselves. That’s very important to adapt the models to our own unique use cases. We find this drastically compresses the time needed for investigations.”

Another critical factor is that Gurucul meets various regulatory requirements with which Vi needs to comply, especially in the areas of data masking, data anonymization, and data localization. “We have data privacy concerns and Gurucul helps us address them,” says Kasilingham.

Gurucul increases the value of Vi’s other existing technologies through its extensibility. The platform has the ability to integrate with other tools with ease. “A critical aspect of making a SOC fully operational is the ability to integrate and automate the IT platforms,” says Kasilingham. “When we have an incident, it triggers a workflow. Gurucul’s ability to integrate with our service desk platform and to automate and orchestrate responses was a crucial objective for us. This was a clear factor in our choice of Gurucul.”

“A really cool feature we were able to adopt is Gurucul STUDIO, which allows us to easily create custom machine learning models to match the situations we are in. It really enhances our predictive security analytics and gives us even more value from the platform.”

Out-of-the-Box Features Jump Start Productivity

The shift from the pilot program to full implementation of Gurucul took only two to three weeks. “We were able to put the platform into our live operations directly,” says Kasilingham. “The out-of-the- box threat content they brought delivered real true positive situations on the first day we migrated and fully moved onto their platform. We could put to use some of their sample use cases immediately to start showing quicker value back to us.”

Some of the use cases involved privilege escalations from an insider threat perspective, as well as looking at identity being used in various situations. “In some of these identity use cases, we are trying to relate malware and advanced threat-based attacks,” according to Kasilingham. “Our analysts took a comprehensive three-day training program from Gurucul to help them learn the platform and bring in their knowledge of the telecom domain to incorporate into the use cases to make them more appropriate to us.”

Vi actively plans to work very closely with Gurucul Labs to get the most out of the Gurucul Security Analytics and Operations Platform. “We want to merge their engineering thought process with the domain that we operate to evolve our overall security operations,” says Kasilingham. “Its important that our SOC modernization look at both identity-driven and asset-driven involvement in any threat analytics.”