The Vodafone-Idea merger deal that received approval from Idea Cellular’s board of directors on Monday has been cited by the company to create ‘India’s largest telecom.’

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Vodafone and the Aditya Birla Group announced that they have entered into a shareholders’ agreement and said, “…it is intended that the combined company’s articles will be amended at closing to reflect certain rights for each Party.”

The release put out by Vodafone and Idea on the merger said that the Board of the combined entity will comprise of 12 directors including three directors appointed by each of Vodafone and the Aditya Birla Group, and six independent directors. 

Key highlights of the deal have been listed in the release as follows.

1. Vodafone to combine its subsidiary Vodafone India (excluding its 42% stake in Indus Towers) with Idea, which is listed on the Indian Stock Exchanges.

2. Highly complementary combination will create India’s largest telecoms operator with the country’s widest mobile network and a strong commitment to deliver the Indian government’s ‘Digital India’ vision.

3. Sustained investment by the combined entity will accelerate the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies, support the introduction of digital content and ‘Internet of Things’ (IoT) services as well as expand financial inclusion through mobile money services for the benefit of Indian consumers, businesses and society as a whole.

4. Merger of equals with joint control of the combined company between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement.

5. The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is Rs 828 billion (US$12.4 billion) for Vodafone India and Rs 722 billion (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 EBITDA2. 

6. Substantial cost and capex synergies with an estimated net present value of approximately Rs 670 billion (US$10.0 billion) after integration costs and spectrum liberalisation payments, with estimated run-rate savings of Rs 140 billion (US$2.1 billion) on an annual basis by the fourth full year post completion3.

7. Vodafone will own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for circa Rs 39 billion (circa US$579 million) in cash concurrent with completion of the merger. The Aditya Birla Group will then own 26.0% and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time. 

8. If Vodafone and the Aditya Birla Group’s shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

9. Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement.

10. Vodafone India will be deconsolidated by Vodafone on announcement and reported as a joint venture post-closing, reducing Vodafone Group net debt by approximately Rs 552 billion (US$8.2 billion) and lowering Vodafone Group leverage by around 0.3x Net Debt/EBITDA4. The transaction is expected to be accretive to Vodafone’s cash flow5 from the first full year post-completion.