Vodafone confirms merger talks with Idea to take on Airtel and Jio

After Reliance Jio, Indian telecom industry is in for another major overhaul as Vodafone Group Plc. has confirmed that it is in talks for a merger of its Indian unit with Aditya Birla Group’s Idea Cellular Ltd.

The documents filed by Vodafone’s UK parent with the London Stock Exchange have revealed that the two telecom majors are in initial talks to merge their businesses in a cashless deal. The proposed merger will create India’s largest telecom company with combined revenue of Rs 78,000 crore and a 43 percent share of the market that was until now dominated by Bharti Airtel Ltd with 33 percent market share, which reported annual revenue of Rs 50,008 crore from local telecom operations in the last financial year.

While the two companies did not give any details, the statements issued by the two parties suggest that Birla wants equal rights and that Vodafone will hold 50 percent or less in the merged entity. Vodafone will be issued fresh shares of Idea, which will continue to be listed.

This would also mean that Vodafone’s Indian business ceases to be a subsidiary of Vodafone Group Plc which then won’t have to consolidate its Indian unit’s numbers, including debt and losses, into its own financials. Vodafone India has a debt burden of over Rs 34,000 crore and its losses have widened in the first half of the current fiscal.

In the wake of Reliance Jio’s entry into the Indian telecom landscape, Vodafone Group had to write off $5.3 billion in its Indian business last year and defer a proposed share sale.

If the proposed merger succeeds, it would then become a three horse race between the new merged entity, Airtel and Reliance Jio and will further intensify pricing wars between them.