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LONDON, UK / ACCESSWIRE / March 21, 2017 / Active Wall St. blog coverage looks at the headline from London, UK based Telecom giant Vodafone Group PLC (NASDAQ: VOD) as the Company and Indian Telecom Major, Idea Cellular Ltd announced on March 20, 2107 that they are joining their operations in India. Their union will result in an unrivalled telecom leader in India. Register with us now for your free membership and blog access at:

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One of Vodafone Group's competitors within the Wireless Communications space, China Mobile Limited (NYSE: CHL) will be reviewed by the AWS team which will then initiate a research report following its next earnings release.

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Commenting on the merger Kumar Mangalam Birla, Chairman of Aditya Birla Group said:

"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."

Vittorio Colao, Chief Executive of Vodafone Group PLC said:

"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."

The Deal

Vodafone will bring to the table Vodafone India including its standalone towers business but excluding its 42% stake in Indus Towers. Idea will bring in all of its assets including its standalone towers as well as its 11.15% stake in Indus Towers. The deal puts the enterprise value for Vodafone India at $12.4 billion and Idea's mobile business, excluding its 11.15% stake in Indus Towers, at $10.8 billion. Vodafone is also expected to pay off Idea's debt of $7.9 billion (as on 31 December 2016). Once the deal is completed Vodafone will own 45.1% of the merged entity and simultaneously transfer 4.9% stake to the Aditya Birla Group for $579 million in cash. Aditya Birla Group is expected to own 26% stake in the merged entity and the remaining 28.9% stake will be owned by Idea's other shareholders.

The Aditya Birla Group has retained the right to acquire an additional 9.5% stake in the merged entity from Vodafone under mutually agreed terms.

Before the completion of the merger, Idea will sell off its 11.15% stake in Indus Towers and Vodafone will consider strategic options to offload its 42% stake in Indus Towers. This will reduce the debt burden on the new merged entity.

The deal is expected to close in the calendar year 2018 and is subject to approvals from Idea's shareholders, relevant regulatory authorities, and other closing conditions.

The Merged Entity

The merged entity will be jointly controlled by Vodafone and The Aditya Birla Group.

The name of the merged entity has not been disclosed and will be shared later. The brand, its business strategy for growth will be developed soon and will leverage both brands customers' decade long affiliation. The Board of Directors of the merged entity will have a total of 12 directors, of which 6 will be independent directors, and Idea and Vodafone will each nominate three directors. The Aditya Birla Group will have the exclusive right to select the Chairman of the Board and Vodafone will have the exclusive right to select the Chief Financial Officer (CFO). The Chief Executive Officer (CEO) and the Chief Operating Officer (COO) will be jointly selected by both Vodafone and Idea. Both Companies expect the management team to be in place before the finalization of the deal.

The Shareholders' agreement and the Articles of Association of the merged entity will have a number of conditions and clauses. One of the exclusive clause in the same states that at least one of the parties will hold more than 26% stake in the combined entity until March 31, 2020 and above 21% stake after that.

Intrinsic Benefits

The merged Company will have nearly 400 million customers and a market share of 35% in terms of customers and 41% in terms of revenue. The joining of forces will enable the merged entity to achieve scale and efficiency wherein it will be able to offer innovative and competitively priced mobile services in a highly cut-throat environment. The merged entity will be able to speed up its expansion of operations across India and offer wireless broadband services on 4G/4G+/5G technologies and other digital and IoT (internet of Things) services. This will be possible with joining of networks, spectrum capacity, and investments. Vodafone had a stronger presence in metro areas whereas Idea was stronger in semi-urban and rural areas in India. The combining of the two will result in a telecom leader with an evenly distributed presence across all market sections. Additionally, since both Vodafone and the Aditya Birla Group back the deal, they would apply their expertise, knowledge of the Indian market to help drive the growth, investment in the merged entity, and create value for all stakeholders.

Financial Benefits

The transaction is expected to be accretive to Vodafone's cash flow within the first year of completion of the transaction.

The merger will result in run-rate cost and CapEx synergies of over $2.1 billion annually from the fourth year after the completion of the deal. Savings, in terms of operation cost, are expected to be 60% of run rate savings but do not include the cost of integration.

The deal also comes with a break-up fees of $500 million that would become payable under certain circumstances.

Background

The consolidation of Vodafone and Idea was triggered by the price war started by Mukesh Ambani's Reliance Jio. Jio was launched in September 2016 and since its launch it has offered free voice and data. From April 01, 2017, Jio is also offering free voice calls for life and unbelievably cheap data plans. This has forced the highly competitive Indian telecom players to slash their prices and look at consolidation to survive.

Stock Performance

At the closing bell, on Monday, March 20, 2017, Vodafone Group's stock slightly fell 0.26%, ending the trading session at $26.48. A total volume of 4.38 million shares were traded at the end of the day. In the last month and previous three months, shares of the Company have advanced 5.00% and 7.29%, respectively. Moreover, the stock gained 8.39% since the start of the year. The stock has a dividend yield of 5.78% and currently has a market cap of $69.36 billion.

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