A merger is an arrangement that combines two current businesses into a single
new business. There are various merger types, and businesses merge for a variety
of reasons. Mergers and acquisitions (M&A) are frequently carried out to broaden
a company's clientele, enter new markets, or increase market share. The goal of
all of these actions is to raise shareholder value. Companies frequently adopt a
no-shop provision during a merger to stop acquisitions or mergers by other
A merger is a voluntary amalgamation of two companies operating on roughly equal
terms into a new legal entity. The companies agreeing to the merger are roughly
similar in terms of size, customers and scope of activity. That is why the term
"association of equals" is sometimes used. Acquisitions, unlike mergers, are
usually not voluntary, and one company actively buys another. In most cases,
mergers are made to increase market share, reduce operating costs, expand into
new territories, combine common products, increase revenue, and increase
profits, all of which should benefit the company's shareholders. After the
merger, the shares of the new company are distributed to the existing
shareholders of both original companies.
The Vodafone company originated from the UK-based Vodafone Group plc. It is an
international telecommunication service provider in 22 different countries as of
November 20, 2020. And in India, Vodafone is headquartered in Mumbai,
Maharashtra. Vodafone is the country's third largest telecommunications
provider. Vodafone Early in 1992, Vodafone established its business in Bombay
(now Mumbai), India. After the entry of JIO in 2016. This is where our Vodafone
case study begins, Vodafone and Idea announced their merger in March 2017. From
31 August 2018, it will be called Vodafone Idea Limited.
About Aditya Birla Group
Aditya Birla is an Indian multinational company headquartered in Mumbai. It
belongs to the Fortune 500 group of companies. It operates in almost 36
countries. It employs 120,000 workers. Globally, it is the number one market for
aluminum rolling, viscose staple fibers and carbon black. Aditya Birla Group is
a leader in various sectors in India such as fashion, lifestyle, viscose
filament yarn, gray, white cement and concrete.
It is the largest producer in
the chloralkali sector, as well as life insurance and investment management.
Idea Cellular was the first international company of the Birla group. It was
founded in 1995. Idea Cellular was the third largest telecom company in India
with a market share of 15.9 percent.
Reasons for Vodaphone Idea Merger
The main reason behind the Vodafone-Idea merger is the growing dominance of
Handel's Reliance Jio in the telecom industry. As Jio has announced that it is
offering free services for the first 6 months. As a result, it began to occupy a
greater part of the market. Second, Jio's free services triggered a price war
between telcos (in an oligopolistic market structure). As a result, in the event
of a price war, the merger brings confidence to the companies with the benefits
Ultimately, the combined entity of Vodafone and Idea was expected to
have a strong position in the industry. For example, it became the largest
telephone provider in some districts and second largest after Bharti Airtel in
some districts. Hence the subsidiary can focus as a service provider across
India. So these were the reasons for merging Vodafone and Idea in Vodafone case
According to the statement of the companies, the synergy will be very
cost-effective, with an estimated annual savings of Rs 14,000 crore. The savings
will be achieved through both capital expenditure and operating costs. EBITDA
margins of both companies were around 30%. This is significantly lower than the
margins of Bharti airtel, and Reliance jio infocomm Ltd.
Both Vodafone India and Idea had very low market share individually, which made
it difficult for them to compete effectively in the industry.
The merged company will have 400 million subscribers, 35% customer market share,
and 40% revenue market share.
On the one hand, Vodafone has an individual spectrum holding of 411 MHz and Idea
has a spectrum holding of 316 MHz On the other hand, Reliance Jio has an
individual spectrum hold of 860 MHz and
It was anticipated that the merger of the two companies would give the merged
company a dominant position of 728 MHz which would increase the merged company's
chances of not ranking anywhere or on the number 2 spot in India.
Promoters Aditya Birla Group invested Rs 3,250 crore in Idea Cellular, which
independently raised Rs 3,000 crore ahead of a planned junction with Vodafone
India. Following the equity infusion by Idea's promoters, their stake in India's
third- largest telecom driver rose to 47.2 from 42.4 now.
Idea contributed its means which included standalone halls with 15,400 vacancies
and a stake in Indus halls Ltd of11.5. The entry of Reliance Jio Infocomm Ltd in
September 2016, with free services for nearly seven months and cheap tariffs,
had eroded perimeters and impacted the profit of rivals.
The donation of Vodafone will be Vodafone India along with standalone halls with
15,400 vacancies without including an11.5 stake in Indus Towers. According to
the agreement between Idea and Vodafone. Vodafone will contribute further
quantum of net debt, about Rs 2,480 crore than Idea at the completion of the
junction. Post-termination of both companies, the combined reality will be a
common adventure between Vodafone and Idea in the Vodafone case study. Which
will regard for the under the equity system, 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
Vodafone: 45.1% � 9.5% = 35.6%
Idea: 26% + 9.5% = 35.6%
The advertisement of the junction creates a negative image in the public, when
the Vodafone and Idea junction was blazoned the Idea prices started to drop. And
the share price of Idea declines fromRs.97.70 on 20th March 2017 toRs.81.81 on
6th Sep 2017. But the junction was important it gave support to the two
companies, which were floundering to survive in the assiduity. Combined coffers
will help to contend with only the two biggest brands (Jio and Airtel).
Idea Positioning Before Merger
Innovated in 1995, the company was incorporated as Birla Dispatches Limited and
had a license of GSM- grounded services in Gujarat and Maharashtra Circle. In
the following times, the association started to expand its business with Tata
Group, Birla and AT&T group of the US in common adventure form. In August 2015,
Idea blazoned the rollout of its 4G services. It was now contending with Airtel
and Vodafone � in anon-monopolistic request. The company relaunched its "What an
Idea" crusade taking 4G to the pastoral areas and empowering people through the
operation of 4G services.
But in the time 2016 unforeseen advertisement from Mukesh Ambani about Reliance
Jio disintegrated the Indian telecom sector. Below pie map shows the request
share of different telecom players before the entry of Jio. As the Indian
request is veritably sensitive towards price and Jio used it to make utmost of
the gains. So, Jio started to make its all services free for the first six
months. latterly, they made the services of voice calls, data extremely cheap.
As a result, JIO captured a significant share of the telecom assiduity. Then's
the pie map of thepost-Jio request share of colorful telecom players.
Impacts of Merger on Telecom Industry
Impact Of Merger On Telecom Industry There are also several other
counteraccusations that this junction of Vodafone case study will bring forth on
the telecom assiduity.
- Originally, there can be enterprise grounded on the renewal of price discipline for the disruptive entry by Jio has caused some serious misbalance.
- Secondly, the poor fiscal health of the telecom sector can be observed. And through similar combinations, there will be an infusion of health and life. Since India is the swift-growing request in terms of subscriber base.
- Through the junction, Vodafone and Idea will overcome their debts and a large sum of credit will be invested into the system.
- The deal has also saved both the telecom companies from dealing off their business. As was being planned by them originally and this would directly impact the quality of services being handed by different players in the assiduity. The junction in the Vodafone case study will surely boost the pace of the telecom sector. It has also been set up that the savings, solidarity and also the diapason will have a substantial impact on the raising growth. There will be a saving of over 60 per cent of the cost of the operation and this will prop in perfecting the quality and performance of the service through investments from the saved plutocrat.
The Vodafone and Idea Telecom junction was a strategic move to offset the entry
of Reliance Jio into the Indian telecommunications request and increase
competitiveness. still, the company is now heavily in debt due to a combination
of legal pretenses and declining profit.