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Vodafone and Idea to merge: India to witness birth of a telecom giant
While having to face a very intense competition from rich-in-cash rivals Reliance Jio, the Aditya Birla Group and British telecommunication giant Vodafone on Monday announced the merging of their wireless telephonic businesses.

This will create the largest telecommunication operator in our country. This amalgamation will have a 40 per cent market share and four hundred million customers.

Vodafone Group Plc Chief Executive Officer, Vittorio Colao and Aditya Birla Group Chairman, Kumar Mangalam Birla said in a news conference in Mumbai that this merger would create a new champion of digital India and that it would be launching its new services soon.

In the inception of this merger, Birla-owned Idea Cellular & Vodafone India would be merging their operations while maintaining a swap ratio of 1:1. Then, the Birla's holding companies would be buying 4.9 per cent stake from the Vodafone at Rs 110 per share, investing close to an amount of Rs 3,900 crore. This will lead to an increase of Idea's stake to 26 per cent and bring down the Vodafone PLC stake to 45.1 per cent.

This would be followed by the Birlas having the right to acquire another 9.5 per cent stake from Vodafone in the upcoming 4 years, so that both partners would eventually hold equal stake in the company (about 35.5 per cent). Until the Birlas buy the additional shares, Vodafone PLC would have restricted voting rights on these shares.

"India was earlier the jewel in our crown. Now with this merger, we have got a bigger jewel," Colao said, also adding, "This is our Make in India initiative."

Colao said that the pending tax demand would not impact the merger, as it was against the Vodafone group. The firm is deeply involved in a 2.5 billion dollar tax dispute with the tax authorities in the country, over its purchase of the Hutchinson Essar in the year 2007 for 11.2 billion dollars. Currently this matter is under the arbitration overseas under international laws.

The merger ratio of 1:1 was based on Idea's undisturbed share price of 72.5 rupees, which was based on the thirty-trading day average price as on 27th January, when Idea & Vodafone first confirmed that they were contemplating a merger. It is after that time that the Idea's stock had shot up on speculation that it would fetch a far higher valuation.

However, the analysts said that the consolidation in the telecommunication sector, triggered by Jio's 25 billion dollar (around Rs 1.7 lakh crore) investment, was likely to continue.

"Consolidation is a much-anticipated and welcome development in this beleaguered sector. It will help bring in operational efficiencies and improved quality of services for customers. The regulatory regime will have to ensure that benefits of effective competition continue to be availed by customers," said Arpita Pal Agrawal, leader and partner – Telecom, PwC India.

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