Possible Roadblocks to Vodafone-Idea Merger

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Vinay Agrawal, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur


Vodafone India, India’s second largest telecom company is in talk with Idea, India’s third largest telecom company for a possible merger. If this merger happens then the combined entity will become the largest telecom company in India leaving behind the number one Bharti Airtel. This move comes due to the entry of Reliance Jio in the market. Jio is offering free voice and data services which are affecting other players. Bharti Airtel reported a 55% fall in its third quarter and Vodafone India is finding it difficult to increase the market share.

This consolidation move by Vodafone India to merge with Idea is a good move. But for the merger to take place, both the companies have to pass various hurdles. Firstly, India M&A (Merger and Acquisition) rules require the merged entity to hold up to 25% of total assigned spectrum and up to 50% in a specific band. This will pose a problem for them as the combined entity will have more than 50% spectrum in five circles namely Maharashtra, Gujarat, Kerala, Haryana, and Uttar Pradesh (West).Secondly, India M&A rules entail a merged entity’s combined customer market share(CMS) and revenue market share(RMS) does not exceed 50%. In this case, also the combined entity is crossing the limit for CMS in Maharashtra, Gujarat, Kerala, Haryana and Uttar Pradesh (West) and RMS in – Mumbai, Maharashtra, Gujarat, Kerala, Haryana, and Uttar Pradesh (West).Thirdly, Vodafone-Idea merger will lead them to a 53% ownership of Indus towers and Bharti Airtel to 42%.This will raise the issue of control which may compel the merged entity to sell its Indus tower holdings. Lastly, both the company has to be very clear whether they are doing this merger just to counteract Jio or there will be long-term goals and objectives of merged entity. Otherwise, it will be difficult for both of them to continue their operations.

References

http://gadgets.ndtv.com/telecom/features/vodafone-idea-merger-is-full-of-opportunities-and-challenges-1654551

 

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