1. Critical Appraisal of Vodafone &
Idea Merger
Name: Alankriti Parita
Course: BBA Sem 6
Roll No: BBAG17044
2. What is a Merger?
• A merger is an agreement that unites two existing
companies into one new company.
• There are several types of mergers and also
several reasons why companies complete
mergers.
• Mergers and acquisitions are commonly done to
expand a company’s reach, expand into new
segments, or gain market share. All of these are
done to increase shareholder value.
3. Which type of merger is of Vodaphone and
idea?
• A horizontal merger occurs between companies
operating in the same industry. The merger is typically
part of consolidation between two or more
competitors offering the same products or services.
• Such mergers are common in industries with fewer
firms, and the goal is to create a larger business with
greater market share and economies of scale since
competition among fewer companies tends to be
higher.
• Vodafone & Idea Merger is a horizontal merger as both
companies are in the same line of business. Vodafone
merged with Idea to Create a large business and to
have greater market share.
5. • Growth stage, company’s sales and
profits starts increasing and
competition also begin to increase. The
product becomes well recognized at this
stage and some of the buyers repeat
the purchase patterns. During this
stage, firms focus on brand preference
and gaining market share.
• Vodafone is in the growth stage of
product life cycle as day by day they are
coming out with new service and
product. They are looking for new
market and creating new one. The
market is not saturated in terms of
service. Vodafone was doing innovation
continuously.
7. • At maturity stage, brand awareness is
strong so sale continues to grow but at a
declining rate as compared to past. At this
stage, there are more competitors with
the same products. So, companies defend
the market share and extending product
life cycle, rather than making the profits,
By offering sales promotions to encourage
retailer to give more shelf space to the
product than that of competitors.
• Idea was in maturity growth of product life
cycle. Idea brand awareness was strong so
they have continuous growth but they
have declined rate as compared to past.
Idea was defending its market share rather
than making the profits.
8. Motive of
Vodafone
Idea Merger
Improved infrastructure to provide superior service
• The biggest impact of this merger will arguably be seen
in the improvement of telecom infrastructure that
currently exists in the country. Since the entry of Reliance
Jio back in 2016, the telecom sector has improved greatly
in terms of connectivity.
• This merger should help Vodafone Idea Limited provide
better service in terms of both connectivity and quality.
• Vodafone Idea Limited, with a wide spectrum portfolio of
about 1,850 MHz, and the largest voice network with
over 2 lakh GSM towers and about 2.35 lakh kms of fibre
connectivity, should provide "superior voice and
broadband connectivity across the country" and cover as
much as 92 per cent of the population by reaching nearly
5,00,000 towns and villages.
9. Improved tariffs
• Since its entry into the market in November 2016,
Reliance Jio has caused a shake-up that has seen India
become one of the most affordable markets for availing
telecom services. Jio started a price war upon its entry
that eventually led to mobile tariffs tumbling drastically.
• With Vodafone Idea Limited stepping into the ring,
things may just get even better for the end consumers.
• Despite the merged entity carrying a debt of thousands
of crores, existing customers of Idea and Vodafone can
expect to be offered superior services at much
aggressive price points, which would, in turn, see Jio and
Airtel indulge the new telecom operator in another
round of price cuts and tariff justment to fend off
competition.
10. The fight for the future
• Apart from providing better services at more affordable
tariffs, the merged entity should also help the Indian
telecom sector improve adoption of state of the art
technologies, and hasten the move towards the next big
thing in telecom, 5G.
• With a broadband network (3G+4G) of over 340,000 sites,
Vodafone Idea Limited will cater to a staggering 840 million
subscribers across the country and give Jio and Airtel a
good run for their money in the space.
• However, that's not just where the company plans to stop.
With its pooled resources, Vodafone Idea Limited will be
better placed to not only improve 4G connectivity but also
upgrade its network to 5G in the years to come.
11. Vodafone Idea Merger Synergies
• Vodafone idea said its merger integration
is moving ahead of plan and the telco will
be able to unlock the synergies worth
₹14,000 crore by FY21 rather than earlier
estimated FY23.
• “Original synergy target brought forward
by two years — ₹14,000 crore of run-rate
costs and capex synergies (₹8,400-crore
opex and ₹5,600-crore capex) on an annual
basis by the second full year post
completion,”
PARTICULARS
AMOUNT (RS
CRORE)
Rental and Energy Cost 4,900
IT 300
Network Cost 300
Acquisition, Servicing and
Advertising
1,200
Total 6,700
13. Valuation
Methodology
• Kumar Mangalam Birla owned Idea Cellular NSE
3.13 % said its Board has approved of a merger
with Vodafone India and its wholly owned
subsidiary Vodafone India Mobile Services,
which will create India's largest mobile phone
company with about 400 million customers,
35% customer market share and 41% revenue
market share.
• Vodafone will own 45.1% in the combined entity
after transferring 4.9% to the promoters of Idea
Cellular for Rs 3,874 crore in cash post the
merger. Kumar Mangalam Birla and other
promoters of Idea Group will hold 26% and the
rest will be owned by the public
14. • The companies added that the implied enterprise value is Rs 828 billion or $12.4
billion for Vodafone India and Rs 722 billion or 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.
• Vodafone will contribute Rs 2,500 crore ($369 million) more net debt than Idea,
upon closure of the merger. Based on Idea's net debt of Rs 52,700 crore at
December end, Vodafone would contribute Rs 55,200 crore of net debt to the
merged entity.
• Vodafone India will be deconsolidated, reducing Vodafone Group's net debt by Rs
552 billion or $8.2 billion and lowering Vodafone Group leverage by around 0.3x
Net Debt/EBITDA. The transaction is expected to be accretive to Vodafone’s cash
flow from the first full year post-completion.
