Vodafone mulls merger with Idea Cellular to combat Indian rivals
January 31, 2017
UK wireless carrier Vodafone (LON: VOD) has confirmed reports that it has engaged Aditya Birla in talks about an all-share merger of Vodafone's Indian operations with Idea Cellular (NSE: IDEA), an Aditya Birla subsidiary. Any merger would be effected by issuing new Idea shares to Vodafone, with one result being the deconsolidation of Vodafone India. However, the discussions currently exclude negotiations for Vodafone's 42% stake in Indus Towers, a joint venture providing telecom infrastructure services currently owned by the negotiating parties along with rival wireless carrier Bharti Airtel (NSE: BHARTIARTL).
India has proven a tougher market to crack than anticipated for Vodafone. Competition with the likes of Idea has led the company to write down roughly $8.3 billion since acquiring the asset in 2007, according to Bloomberg. But the deal for Vodafone India would create a formidable foe to Bharti Airtel. At some 379 million subscribers, the combined company would rank second only to China Mobile (NYSE: CHL) as the world's largest wireless carrier, sliding into Vodafone's current slot on the global league table, per The Wall Street Journal.
Consolidation at the top could also stop startups like Jio, founded by Reliance Industries' (NSE: RELIANCE) Mukesh Ambani last year, from cutting further into market share with cheaper data plans. And investors agreed that'd be a good move. Despite the preliminary nature of the discussions, Vodafone closed up 3% in London, with shares of Idea leaping over 25% in Mumbai, giving the company a market cap of INR352.51 billion (~$5.2 billion).