1

“Vodafone Idea Merger To VI”

CASE STUDY
Project Report

Submitted in partial fulfilment of the

requirements for the award of the degree

Bachelor of Commerce
(Honors)

by
Name: Satyam Gahoi
Enrollment Number: CSJMA20001439048

Under the Guidance of Akansha Singh

Assistant Professor,
Jagran College of Arts, Science & Commerce
Kanpur

Jagran College of Arts, Science & Commerce

Kanpur 2022- 2023

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CERTIFICATE

I hereby certify that the work which is being presented in the project entitled "Vodafone
and Idea merger to VI" in partial fulfillment of the requirements for the award of the degree
of Bachelor of Commerce (Honors) and submitted to the Jagran College of Arts, Science
& Commerce Kanpur is an authentic record, compiled and submitted under the guidance
of Akansha Singh, Assistant Professor, Jagran College of Arts, Science and Commerce,
Kanpur. Whatever, information furnished in this project report is true to the best of my
knowledge.
The matter presented in this report has not been submitted by me for the
award of any other degree of this or any other University/lnstitution.

Name: Satyam Gahoi

This is to certify that the above statement made by him is correct
to the best of my knowledge.
Akansha Singh
(SUPERVISOR)

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CANDIDATE'S DECLARATION

I declare that this written submission represents my original work in my own

words and where others' work have been included, I have adequately cited and
referenced the original sources. I also declare that I have adhered to all principles of
academic honesty and integrity and have not misrepresented or fabricated or falsified
any idea/data/fact/source in my submission. I understand that any violation of the
above will be cause for disciplinary action by the college and can also evoke penal
action from the sources which have thus not been properly cited or from whom proper
permission has not been taken when needed.

Name:- Satyam Gahoi

B.Com Hons. Vlth Semester
Roll Number: 0780048
Enrollment Number: CSJMA20001439048
Jagran College Of Arts Science
And Commerce, Kanpur

Date:

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Content
Sl. No. Particulars Page No.

1. Chapter 1: Introduction 5

2. Chapter 2: Review of Literature 12

3. Chapter 3: Research Methodology 15

4. Chapter 4: Data Analysis and Findings 17

4. Chapter 5: Results and Discussions 24

5. Chapter 6: Conclusion 27

6. References 28

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CHAPTER 1: Introduction
In recent times, Mergers & Acquisitions have been happening continuously in the corporate space. The
volume of Mergers and Acquisitions taking place worldwide has been increasing and this activity is
undertaken by companies who are looking to strengthen their businesses, especially during periods of
uncertainty.

Mergers and Acquisitions are transactions that occurs in between two companies that join in some way for
growth or for the sake of expanding. It is a form of growing inorganically where the company purchases
growth which is already present. It works on the principle of 2+2 = 5. The firm avoids growing through
Greenfield and Brownfield projects, and rather prefers the acquisition mode. Mergers and Acquisitions is a
strategic exercise. It is a tool for quick growth. It creates synergy value (mostly with identical business)
through higher revenue, lower expenses, or lower cost of capital. Depending on the nature of the involved
companies/organizations business scenario, as well as the payment mode and deal structuring, mergers
and acquisitions may take variety of forms.

Mergers and Acquisitions is a very broad term and includes corporate reorganizations like demerger,
capital reduction, buyback, etc.

Merger and Acquisition can be of several types namely:

1. Horizontal Merger and Acquisition: A horizontal merger & acquisition occurs when two different
companies that operate in comparable/competition industries merge and acquire each other. It is irrelevant
whether they are direct competitors or not.

2. Vertical Merger and Acquisition: Along the supply chain, a vertical merger & acquisition occurs
between a company and its supplier or a customer. The corporation wants and desire to consolidate its
position in the industry by moving up or down along its supply chain.

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3. Conglomerate: A Conglomerate Merger & Acquisition happens usually for diversification (for
spreading risks) benefits, and it usually takes place between companies which are in unrelated
industries/sector.

4. Concentric: A Concentric Merger & Acquisition happens between companies in different

industries but having same/similar customer base.

5. Reverse: A Reverse Merger & Acquisition happens when a Private limited company is merged
with a Listed company or smaller company is merged into a bigger company or parent company is
merged into its subsidiary.

The Merger of Vodafone and Idea

The ranking of second largest telecommunication market in the world has been given to India. India has
more than 1.20 billion subscribers and that too, the subscribers is growing at a continuous rate over the
last decade which is also contributing to the country’s Gross Domestic Product (GDP) which adds to the
benefit of economy as well.

The telecom business which is run by telecommunication companies in India is an oligopolistic market
which signifies market with only a few sellers. Vodafone Idea Limited, headquartered in Mumbai,
Maharashtra, India is largest telecom service provider in India. The merger of Vodafone Group
(Vodafone Mobile Services Limited (VMSL) and Vodafone India Limited (VIL) with Aditya Birla
Group’s Idea Cellular was approved by the National Company Law Tribunal (NCLT) in the year 2018 in
the month of August.

The primary goal of this project will be to determine and understand:

- What value has been created for the shareholders because of this merger which has taken place?
- What was the rationale behind the merger of Idea and Vodafone and what potential synergies
existed after the merger which has taken place?
- Issues and challenges that Idea and Vodafone’s management faced because of this merger and what
were the plans/strategies which they took to successfully overcome those challenges
- To assess the impact on the telecommunication industry following the merger of Idea and
Vodafone in India

Company Profile: Vodafone India

Vodafone India was an Indian mobile network operator that offered cellular telephone services. Prepaid
and post-paid services such as number portability, roaming, and calling cards; mobile internet; consumer
phones; voice and messaging, data, wireless, audio conferencing, hosted business solutions, enterprise
website solutions, and machine-to-machine solutions; and professional devices for businesses were all
part of the company’s product portfolio.

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Entertainment and lifestyle, gaming, social networking, mail and messaging, devotional, health, news and
finance, travel and transportation, and caller management were all areas where the company supplied
downloadable services. It had physical/real and online/virtual storefronts where it sold/marketed its
goods/services and products.

In October 2011, Vodafone India Limited, formerly known as Vodafone Essar Limited, changed its name
to Vodafone India Limited. The firm was founded in 1992 and was headquartered in Mumbai, India.

Let’s have a look at the Tour of Vodafone in India

2007: Vodafone paid $ 10.9 billion for Hutchison’s 67% share in Hutchison Essar.
Vodafone name was changed to Vodafone Essar
Vodafone was faced and hit with a tax demand of INR 11000 crore
2011: Vodafone buys Essar’s 33% interest in Vodafone’s Essar for $ 5.4 billion and renames the firm as
Vodafone India Ltd
2012: Vodafone wins a tax battle/case before the Supreme court
In two tranches, Piramal raised $ 1.26 billion for an 11 percent share in Vodafone
To recoup over INR 20,000 in taxes, interest, and penalties, the government has implemented
retrospective taxation.
2013: Vodafone wins authorization to increase its stake to 100%
2014: In a tax dispute, Vodafone, and the Indian government, each appoint an arbitrator
2016: Announces a $ 7.2 billion equity investment in an Indian company
2017: The company announces a merger with Idea

Company Profile: Idea Cellular Limited

Idea Cellular was a 2G and 3G GSM operator that operated across India. For the year 2013, it was a
multinational firm with sales in excess of $ 4 billion, a revenue market share of approximately about 15%,
and a subscriber base of over 121 million. Idea Cellular was India’s 3rd largest mobile operator, and it was
one of the top ten country operators in the world, with daily traffic exceeding 1.5 billion minutes. Idea’s
extensive panIndia coverage is based on a network of over 100,000 2G and 3G cell stations scattered over
more than 55,000 Indian towns.

Idea provided world-class service delivery with the most extensive network of consumer touch points,
which included approximately 4,500 unique Idea locations and over 7,000 call centre seats, all of which
were powered by cutting-edge technology. Its customer service delivery platform was accredited to ISO
9001:2008, making it India's only operator with this level accreditation for all 22 service zones and the
corporate office. Idea provides a variety of high-speed mobile broadband devices, such as Android-based
3G smartphones, dongles, and other accessories. Its diverse range of 3G smartphones provided the most
up to date 3G applications and high-end data services, such as Idea TV, games, and social networking, at
the most competitive pricing.

Idea had garnered numerous national and international awards for its mobile telephony product and
service breakthroughs. For its continuous performance in 2012, it received the NDTV Business
Leadership Award in the Telecom category. In the categories of 'Customer Experience Enhancement,'
'Excellence in Marketing,' and 'Innovative Products,' Idea won the ET Telecom Awards 2012. At the

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Tele.Net Telecom Awards 2012, Idea also won the 'Best Ad Campaign of the Year' category for the popular
Honey Bunny campaign.

The National Stock Exchange and the Bombay Stock Exchange in India both listed Idea. In "India's Best
Companies to Work for Study 2013" and the "Best Place to Work" at the Asia Communication Awards
2013, it was voted No. 1 in the Telecom industry.

Idea Cellular was a Mumbai-based subsidiary of the Aditya Birla Group. It was established in 1995.

Performance Highlights

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Telecom Service Providers Market Share (in 2016)

The Indian telecom sector was shaken in 2016 when Mukesh Ambani made a surprise announcement
regarding Reliance Jio. The Indian market is extremely price sensitive, and Jio took advantage of this to
make the majority of his profits. For the first six months, Jio made all of its services free. After that, Jio
made voice and data services exceedingly affordable. Jio was able to gain a considerable share of the
telecom market as a result of this.

Telecom Service Providers Market Share (in 2020)

Telecom Service Providers Market Share (in 2021)

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In recent years, the Indian telecom business has experienced rapid growth, becoming the world's second-
largest telecoms industry. In 2019, the country ranked second in the globe in terms of total internet users.
In fiscal year 2020, the industry's gross revenue was estimated to be over 1.2 trillion Indian rupees.
Sector Composition

Composition of Subscribers as of September 2021

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Name of When did they Reason for stopping operations

Telecom stopped
Operator operations

Modi Telstra Year 2000 Merged into Axiata Spice

Limited Communications

Hutch Year 2007 Bought by Vodafone Group

Axiata Spice Year 2008 Merged into Idea Cellular

Communications

S-Tel Year 2012 Supreme Court of India cancelled

its license

Etisalat Year 2012 Supreme Court of India cancelled

its license

Loop Mobile Year 2014 License got expired

Virgin Mobile Year 2015 Merged into Tata Docomo

India

T24 Mobile Year 2015 Merged into Tata Docomo

Videocon Year 2016 Shut down its operations after the

sale of spectrum to Bharti Airtel

MTS India Year 2017 Merged into Reliance

Communications

Vodafone India Year 2018 Merged with Idea Cellular to form

Vodafone
Idea

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CHAPTER 2: Review of Literature

Literature review is one of the most critical chapters because it increases the knowledge of the person
with respect to the topic that is being studied by them. It helps in better understanding of the topic that
has selected for the study.

1. (Wisniewski & Wisniewski, 2005; Ladhari, 2009b)

According to the author of this article, merging and acquiring companies is one of the top concerns of
businesses because it offers them a competitive advantage, helps them sustain growth, and improves
efficiency. Customers nowadays expect greater quality services from businesses, putting pressure on
companies to better understand and measure service quality, efficiency, and customer focus.

2. (Bansal et al. 2008)

The author of this article examined the impact of mergers and acquisitions on a company's performance,
as well as whether the claims made by the corporate sector when choosing mergers and acquisitions as a
type of corporate restructuring to generate synergy were met or not. The author looked at a variety of
mergers and acquisitions scenarios and cases and found that in many of them, the acquiring firm was able
to generate synergy in the long run in the form of higher cashflow, more business, diversification, and
cost cutting, which resulted in improved customer satisfaction, quality, efficiency, and customer focus,
giving the acquiring firm a competitive advantage.

3. (Saraswathy 2010)

In this article, the author discusses a study she is conducting on the corporate sector rebuilding its
operations around the world through extraordinary mergers and acquisitions to successfully address the
obstacles provided by globalization. She analyzed secondary data and financial reports to figure out the
nature, scope, and structure of these merger and acquisition deals in India. The issue was that post-
merger integration is a difficult and timeconsuming undertaking. It comes with a long list of activities
and chores that must be completed in a limited amount of time, as well as some incomplete information.

4. (Ghosh and Dutta, 2014)

The author investigated Merger and Acquisition as a strategic instrument for restructuring in the Indian
telecom sector, as well as the overall strategic influence of Merger and Acquisition in the telecom
industry/sector, in this essay. Secondary data sources included Business Daily, the Ministry of Statistics
and Program Implementation (MOSPI), and others. According to the author, the problem could not be
determined based on the information available. The author carried out a thorough due diligence exercise
that included not only financial but also employee-related issues. As a result, throughout the integration
stage, the merged entities may have run into cultural issues.

5. (Lane et al. 2002)

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The author of this article investigated the myths and realities that existed in the telecom business. The
author of this research explores how market participants react to telecoms industry mergers and
acquisitions. According to the research, such acts send negative signals to the market.

6. (Pawaskar, 2001)

The author analyzed the pre- and post-merger operating performance of firms involved in mergers and
acquisitions and identified the financial features of the corporations in this article.

7. (Sinha et al, 2010)

The author of this article looked at the impact of mergers and acquisitions on a few Indian financial
institutions. The influence of changes in the company's efficiencies during the pre-merger and post-
merger periods was investigated by the author. According to the author's research, merger and acquisition
cases in India showed a strong link between corporate financial success and merger and acquisition deals,
especially in the long run. They concluded that mergers and acquisitions allowed acquiring corporations
to build value.

8. (Pithadia et al, 2010)

The impact of mergers and acquisitions on a company's financial performance was investigated in this
article. Mergers and acquisitions impact on return on investment, profitability, and liquidity position of
selected companies in M&A was investigated and evaluated by the author. The author concluded that the
merging companies were taken over by companies with a solid reputation and good management, and
that the acquirer firms' post-acquisition performance did not prove to be helpful to them.

9. (Gupta et al, 2011)

The author of this article looked at the Indian financial services sector's merger and acquisition scenario
and discovered that while profit after tax (PAT) and profit before interest, tax, depreciation, and
amortization (PBITDA) were positively affected after the merger and acquisition, the liquidity condition
as measured by the current ratio deteriorated.
10. Mueller (1980)

The author of this article claims that conglomerate M&A generates greater profits than horizontal and
vertical
M&A.

11. Beena (1998)

The author of this essay demonstrates that there is no substantial variation in profit margin and return
between the pre-merger and post-merger periods.

Gap Identification from Literature Review

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One of the most important types of corporate restructuring is Merger and Acquisition. Some important
points are not elaborated in the articles.
- How the company is capable to achieve its external demands is not covered in the article.
- The government regulation was also not mentioned in the article.

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CHAPTER 3: Research Methodology

This is an empirical study that is being conducted. The current study is a database-based investigation.
Various statistics and facts were gathered from India's most important commercial and economic
databases. These facts and figures are backed up by information from a variety of business publications,
periodicals, and websites. In addition to secondary data sources such as articles and case studies,
established sites such as money control and past research papers will be used to further the aims.

Secondary data was used to analyze the impact of pre and post M&A on the pre-merger and post-merger
performance of the acquirer's firms in the Indian Telecommunication Industry over time using an
extensive set of financial and operating performance measures, the impact of types of mergers, the effect
of acquiring firm size, and the effect of M&A on shareholder value creation on the pre-merger and post-
merger performance of the acquirer's firms.

The Indian telecom sector is going through a transforming phase now-a-days, telecom operators are
going for mergers and acquisitions to survive in the industry and many players have even existed the
market due to cut-throat competition and heavy losses. Vodafone-Idea merger requires through study and
analysis because this merger created a stir in the market and forced other market players to merge with
big companies. Data Analysis  Financial modelling.  Determination of financial performance post-
merger.  Balance sheet and Profit and loss statemen

Criticism and Challenges of the merger

To deal with the competition, there was no clear strategy in place. The merger may have a detrimental
impact on users because fewer telecom firms in the market means less competition amongst them, and
they may start charging higher fees for the services they supply. Due to the Vodafone group's inability to
invest in infrastructure and spectrum, the merged firm trails Airtel and Jio in data investments, which has
harmed their performance.

The stock price of Idea began to fall once the merger was announced. On the stock exchange, the share
price plummeted from Rs. 97.70 on March 20, 2017, to Rs. 81.80 on September 6, 2017. Analysts
predicted that competing against two major telecom companies (Airtel and Jio) would be difficult.

Furthermore, regulatory challenges, according to analysts, might potentially derail the merger.
Integration would also be challenging due to substantial differences in billing systems, network vendors,
and culture (employees working for a foreign corporation, such as Vodafone, may find it difficult to
adjust to those working for a home-grown entity, such as Idea). The rate structures of Vodafone and Idea
were different since they catered to different industries. The main source of concern was the price points
for various services and how the tariffs would appeal to both types of clients.

In general, nothing new or unusual has been discovered in this transaction. Both Vodafone India and Idea
Cellular were in a battle with Jio prior to the merger. Following the merger, the battle over infrastructure,

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perks, and roadblocks continues. Vodafone Idea, as a united organization, must establish strategies as
well as creative data bundles for its subscribers to thrive in the current market environment.
SWOT analysis

Industry Scenario
Three operators dominate the Indian telecom market: Reliance Jio, Airtel, and Vodafone Idea. As of
September 2020, these three telecom companies have 89.6 percent of the entire subscriber market share.

With a considerable 10.1 percent market share, the government owned BSNL is the sole other provider.
After Airtel and JIO, Vodafone-Idea is now the third largest player.

However, according to the company's published stats, Reliance Jio is number one, followed by Airtel,
and finally Vodafone-Idea.

According to previous experience in the telecom business, leading telephone operators believe that
merging is a powerful weapon for gaining a competitive advantage. When Airtel buys Telenor, it also
buys the scope and business of other smaller telecommunications firms.

In addition, Reliance Communication (R Com) and Aircel amalgamated to form MTC. Additionally, Tata
Telecom has begun the process of combining with R Com. As a result, in seven months duration, the
number of telephone operators in India dropped from twelve to seven in numbers.

One of the key motivations for the merger was to deal with Reliance Jio's growing dominance in the
telecom market. Reliance Jio said that its services would be free for the first six months, allowing them
to acquire the largest share of the market. The free services supplied by Jio sparked a price war among
telecom operators. As a result, during the times of price war between the competitors, a merger gives
companies with synergy benefits more confidence. Vodafone and Idea were expected to have a strong
presence in the sector as a merged organisation. Market Size

As of December 2018, India has 604.21 million internet customers, making it the world's second-largest
market in terms of overall interest consumers at the time of the M&A. Apart from that, India has a
customer base of 1183.51 million, making it the world's second-largest telecoms market.

In 2020, India will have a total of 749 million internet users. The majority of users in India access the
internet via their mobile devices/phones. The overall number of internet users reached 825.30 million by
the end of March 2021.

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CHAPTER 4: Data Analysis and Findings

Merger Details

Vodafone, Aditya Birla Group, and Idea are slated to control 45.1 percent, 26 percent, and 28.9 percent of
the company, respectively, with the planned understanding that Aditya Birla Group will eventually
acquire 9.55 percent of the company from Vodafone Group, bringing their shareholdings to parity. If an
equal shareholding is not established, Vodafone will sell the remaining shares. Voting on Vodafone's
excess interest will be restricted and exercised jointly until there is an equal shareholding.

45.1 percent minus 9.5 percent equals 35.6 percent for Vodafone.
26 percent plus 9.5 percent is 35.6 percent.

Shareholding Change

Details Idea Idea Vodafone Post Aditya Post Aditya

after Merger Group Total
Acquisition on Acquisition
Merger from from Vodafone
Vodafone
Idea 42.4500% 21.1000% 26.0000% 35.5000%
Promoters
Vodafone 50.3000% 45.4000% 35.9000%
Promoters
Social 57.5500% 28.6000% 28.6000% 28.6000%

Total 100% 100% 100% 100%

Reliance Industries' Jio, which entered the market in September 2016 by offering free services for seven
months, wiped out all profits and significantly damaged rivals' revenue.

Structure of the Deal

It was a stock-for-stock merger. Both Idea and Vodafone's promoters have equal say in the company's
most significant decisions. The Chief Executive Officer (CEO) and Chief Operating Officer (COO)
appointments were made jointly by Idea and Vodafone (COO).

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Current holding structure

(Source: Investor
Presentation) Resulting structure

(Source: Investor
Presentation)

The fundamentals of the Vodafone India-Idea Cellular partnership:

- In critical decision-making processes, both Vodafone India and Idea Cellular would have equal
rights.

- Vodafone India and Idea Cellular will continue to operate independently, focusing on their own
strengths and shortcomings.

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STRENGTHS WEAKNESSES
• Largest subscriber base • Huge debt on both the companies
• Improved market share • Functioning as two separate
• Better network capacity and brands instead of one unified brand
expansion of broadband plans due to • Costly restructuring of deals with
higher spectrum of 1850 partners
MHz • Change of market trends
•Savings in cost due to rationalization
of expenses and therefore increasing
efficiency • Wider reach due to
separate segment of users • Presence of
both the companies in the market for
longer term

OPPORTUNITIES
• Benefitting from first mover
advantage by using new technology like
5G
• Investment in data infrastructure
which would improve network and
provide better user experience
• Growing needs of the customers
THREATS
• Jio’s disruptive pricing strategy
• Huge investment by Jio and
Airtel on data infrastructure
• Increased incentives offered by
other telecom players to retailers and
distributors for selling their plans

The merger had a one-to-one ratio. The ratio was calculated using the price of Idea, which was 72.5 cents
per unit. Idea and Vodafone's enterprise values were INR 72 thousand crores and INR 82 thousand
crores, respectively.

Lock-in period

For a period of three years, Idea and Vodafone were unable to purchase or sell any shares from or to any
other party, referred to as the "lock-in period." Vodafone provided an additional 9.5 percent without a
premium, allowing the Aditya Birla Group to purchase an additional 9.5 percent of the shares at a
predetermined price of Rs. 103 per share over the next three years.

Valuation

Vodafone and Idea will operate separately until the merger is finished, and they may use both brand
identities for at least a few years afterward (i.e., post-merger) until a full customer migration is
accomplished. Vodafone is valued at INR 82,800 crore (Enterprise Value) and Idea is valued at INR
72,200 crore (EV) with debts of INR 55,200 crores and INR 52,700 crores, respectively, in this deal.

The Vodafone Group's approach is similarly balanced, and notice that the Aditya Birla team paid a
predetermined amount of dollars of Rs.109 per share to earn a 4.9 percent stake in the company at the
end of the merger (2018). To achieve equality, they can purchase a 9.5 percent ownership for Rs.130 per
share over a four-year period.

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Vodafone India Company Valuations were Rs 94,400 crores on September 30, 2016, and Indus Towers
Stake
Valuations were Rs 47261 crores on October 3, 2016. The entire merger valuation was Rs 47,139 crores,
while Idea Cellular Company Valuations were Rs 39,650 crores (as of January 31, 2016). It shows that
Vodafone India was valued at almost 1.2 times that of Idea Cellular.
Synergy Calculation

Annualized Idea Vodafone Idea + Idea +

Vodafone Vodafone
+ Synergy
(Annualized)
Revenue 1,87,869 2,25,796 4,13,665 7,44,596
EBITDA 59,143 66,273 1,25,417 2,60,609
EBITDA Margin 31% 29% 30.3000% 35%
EBIT 20,409 16,005 36,414 82,602
EBIT Margin (%) 11% 7% 9% 11%
Net Debt 5,59,277 5,76,800 11,36,077 11,36,077
Market Cap 3,96,088 3,96,088 7,92,177 7,92,177
EV 9,55,366 9,72,888 19,28,254 19,28,254
Total Assets 7,35,625 8,48,297 15,83,922 12,67,137
EV / EBITDA 8.10 7.30 7.70 7.40
Net Debt to EBITDA 4.70 4.40 4.50 4.40
ROCE (Post – Tax) 4% 3% 3% 9%
Share Price Rs 110 Rs 110 Rs 110 Rs 110
No. of Shares 3601 shares 3601 shares 7202 shares 7202 shares

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Share Price Charts: April 01, 2018, to March 31, 2019

Share Price Charts: April 01, 2019, to March 31, 2020

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Financial Analysis

Ratio analysis was performed pre-merger and post-merger to investigate the influence of mergers and
acquisitions on the company's financial performance.

Analyzing various Ratios

Parameters Ratios Explanation
Liquidity Ratios Current Ratio Current Ratio equal to Current
Assets / Current Liabilities and
provisions
Quick Ratio Quick Ratio equal to Current
Assets – Inventories / Current
Liabilities and Provisions
Profitability Ratios Earnings Per Share (EPS) EPS equal to Net Income –
Preference Dividends / Weighted
Average Common Shares
Outstanding
Net Profit Ratio Net Profit Ratio equal to Profit
after Tax / Net Sales
Return on Capital Employed Return on Capital Employed equal
to
Earnings before Interest and Taxes
/ Capital Employed
Return on Net Worth Return on Net Worth equal to
Profit After Tax / Net Worth
Solvency Ratios Debt Equity Ratio Debt Equity Ratio equal to Total
Debt / Equity
Interest Coverage Ratio Interest Coverage Ratio equal to
Earnings before Interest and Taxes
/ Total Interest

Idea Cellular Vodafone

India
Pre - Merger Post - Merger Difference Pre - Merger Post - Merger Difference
Current Ratio 0.81 1.08 0.27 0.57 0.47 -0.1
Quick Ratio 0.55 0.50 -0.5 0.56 0.34 -0.22
Debt Equity 2.42 0.68 -1.74 0.23 0.35 0.12
Ratio
Interest 2.51 2.32 -0.19 -10.1 4.8 14.9
Coverage Ratio
Net Profit Ratio 9.28 8.04 -1.24 -46.05 26.95 73.45
Earnings Per 1.46 3.04 1.58 -4.56 2.03 6.59
Share

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Return on 14.42 35.25 20.83 -11.8 5.85 17.65

Capital
Employed
Return on Net 27.78 7.53 -20.25 -15.42 8.77 24.19
Worth

According to the findings, the enterprises have been unable to strengthen their liquidity position. The
profit margin, which is an important instrument for demonstrating the impact of the merger on the
company's profits and justifying management's choice to shareholders, did not improve significantly after
the merger. Merger activity has a detrimental impact on the solvency situation. Strategy followedVodafone
Idea.Any merger and acquisition impact all the stakeholders for example, promoters, investors,
shareholders, employees, retailers, distributors, customers, and government. The parties involved must
consider the interest of all its stakeholders and make sure none of the stakeholders are negatively
impacted.

For the smooth functioning of the merger, following strategies were adopted:
1. Vodafone Group offered ‘golden handshakes’, i.e., benefits were given to the company employees so
that they do not worry in the event of merger taking place when their employment will be terminated.
2. The firms intended to decrease their debt burden and earn revenue by rationalizing tower tenancies -
they had retained the option to monetize their Indus Tower interests – and this step was expected to
generate a USD 10 billion synergy.
3. Capital expenditure and operating expenses were to be executed through redeployment of overlapping
networks in unpenetrated areas to increase network expansion.
4. Employees to be treated equally by both partners without any discrimination on any issues.
5. Higher incentives were given to the retailers and distributors to sell subscription plans. The normal rate
of incentive was Rs 70 – Rs 80 for a subscription plan being sold. Post-merger, the incentive was
increased to Rs 170 – Rs 180 for every subscription plan being sold to ensure retention of current
subscribers and attracting new subscribers to choose Vodafone – Idea over other telecom operators.
6. Changed the color of the sim card to attract more customers.

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CHAPTER 5: Results and Discussions

Benefits expected out of the merger

- After China Mobile Communications Ltd, the combined business will be India's largest telecom
provider and the world's second largest telecom operator in terms of subscribers.
- Because Vodafone India and Idea Cellular serve various segments of users and operate in different
ways, they have a larger reach through their existing brands.
- Sharing of infrastructure would result in lowering of costs.
- Valuation of the combined company is supposed to be increased and debt burden is supposed to be
decreased by rationalization of operating expenses and capital expenditure.

Effects of the merger

The Vodafone Idea merger was well-received by all parties involved, yet it had unintended repercussions.
- Following the merger, Vodafone and Idea laid off 5000 staff. The remaining employees were
affected by cultural differences.
- Because of the fierce competition between the telecom companies, the merger benefited
customers.
- After the merger, the telecom industry now has three major companies. Due to the advent of
Reliance Jio, a major pricing war erupted, impacting the telecom industry's revenue and earnings. -
Vodafone and Idea avoided divesting their companies because of the merger.

Financial Consolidation

Highlights of combination

1. With a combined user base of roughly 400 million, the merger produced India's largest telecom
business.
(According to the TRAI report from December 2016)

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2. Across metro, urban, rural, and deep interior areas, the combination provided great brand appeal.
3. The combination resulted in the world's largest broadband capacity and a 2,50,000-kilometer fiber
network. 4. Using its service footprint of 19,000 company-branded outlets, the partnership established
an unrivalled service infrastructure.
5. The combination generates significant synergies by reducing operational and capital expenditure
costs. The cost-effectiveness of the synergy would be demonstrated. Savings of up to 14,000 crores are
expected.
6. The combination resulted in increased engagement in emerging Digital Services, including
content, which resulted in corporate expansion.

The Present status of Vodafone Idea Merger

After two years of merger, Vodafone Idea rebranded itself as 'Vi' in September 2020. (approx.). It does,
however, demonstrate the spirit of integration. The name 'Vi' is pronounced like the word 'we.'

The Supreme Court of India, on the other hand, pushed for the rebranding after ordering Vodafone Idea
to pay back government debts on schedule. Vodafone Idea owes around INR 504 billion. The corporation
will need to raise $3.41 billion to pay off these debts. The company intends to obtain funds using a
combination of loan and equity. The necessary Board permission has been granted. It also intends to
focus on entering India's 5G service industry.

Financial Performance Post – Merger

Particulars Year 18-19 Year 17-18 Change (Rs.) Change (%)

Sales Turnover 11751.6000 7663.5000 4101.3000 53.5200%
Operating 10614.7000 7202.2000 3412.5000 47.5700%
Expenses
EBITDA 1136.9000 461.4000 675.5000 146.4000%
PAT -5004.6000 -5016.1000 -28.3000 -0.5600%
Equity Share 8735.4000 8735.1000 0.3000 0.0000%
Capital
EPS -5.7300 -5.6900 -0.0400% -0.6200%
EBITDA 9.6700% 6.0200% - 3.6400%
Margin
Profit after tax -42.8800% -65.4500% - 22.5800%
Margin

During the post-consolidation phase, the organization's turnover increased by 53.52 percent in the third
quarter. In Q3FY19, EBITDA increased from 461 crores in Q2FY19 to 1136.90 crores. During the same
time period, EBITDA Margin increased from 6.02 percent to 9.67 percent.

Because of high finance costs, integration costs, and mobile tower exit charges, profit after tax has
decreased by –0.56%.

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Situation Post – Merger and its Analysis

Q2 FY2019 Q3 FY2019

Gross Revenue Rs 12023 crores Rs 11765 crores

Net Loss Rs 4950 crores Rs 5005 crores

Gross Debt Rs 112500 crores Rs 123660 crores

Prepaid 94.3% 93.9%

Subscribers
Total 422 million 387 million
Subscriber
Base
2G Coverage 479187 villages 472381 villages

3G + 4G 99.7 million 108 million

Subscribers
Telecom 202650 198171
towers
Minutes per 568 minutes 580 minutes
user
New sites 24866 11123
added

The above table shows that:

1. The company has lost 35 million subscribers in FY 2019 which is a point of concern.
2. The loss has increased in FY 2019 which is a point of concern.
3. The number of 2G sites has decreased which states that the company is shutting down its 2G networks.
4. 3G + 4G subscribers have increased which shows that the company is focusing on data-centric services
and related infrastructure.
5. The company’s minutes per user has increased in FY 2019.
6. The debt of the company has increased which is not a healthy sign.

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CHAPTER 6: Conclusions

Mergers and acquisitions are mostly used to develop synergy in company processes and operations. The
merger of Vodafone and Idea aspires to become a national and global telecom sector leader. This merger
was necessary to combat Jio's aggressive pricing policy. Consumers benefited greatly from this merger
because all the telecom firms now provide greater service to clients at the best possible pricing in order
to maintain customer and brand loyalty.

To get something out of this merger, Vodafone-Idea will have to come up with new methods to expand
their market share of subscribers and raise net revenue while keeping debt to a minimal. The public
stockholders stand to gain little to nothing under the current circumstances, and they can only hope that
the merger would benefit them in the long run.

In the current state of the Indian telecom business, any new company entering the market will be
impossible. As a result, if a telecom company wants to thrive in this industry in the long run, it must
either make significant capital investments or form strategic alliances.

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REFERENCES

Investor Presentation (20th March 2017): Idea – Vodafone India Merger

https://www.myvi.in/content/dam/microsite/pdfs/InvestorPresentations/FY16-17/Investor-
Presentation(March20,2017).pdf
International Journal of Scientific Research and Engineering Development, Volume 4
Issue 3 http://www.ijsred.com/volume4/issue3/IJSRED-V4I3P44.pdf Vodafone
Idea Limited, Quarterly Report
https://www.myvi.in/content/dam/microsite/pdfs/Results/VIL_QR_Q4FY20.pdf
iPleader, Deal Analysis of Vodafone – Idea merger
https://blog.ipleaders.in/deal-analysis-vodafone-idea-merger/
Wikipedia, Vi (mobile network)
https://en.wikipedia.org/wiki/Vodafone_Idea
Kotak Securities, Things to know about Idea – Vodafone Merger
https://www.kotaksecurities.com/ksweb/Meaningful-Minutes/4-Things-to-know-about-the-Idea-
VodafoneMerger
Economic Times
https://economictimes.indiatimes.com/industry/telecom/telecom-news/idea-vodafone-say-merger-
complete-
now-indias-largest-telco-with-408-million-active-
users/articleshow/65619297.cms?from=mdr Great Lakes Institute of Management, Effects on
the Telecom Market
https://blog.greatlakes.edu.in/chennai/vodafone-idea-merger-effects-on-the-telecom-market/
Indian Journal of Corporate Law and Policy, The Merger of Vodafone and Idea
https://ijclp.com/mergers-and-acquisition-in-telecom-industry-a-case-study-on-vodafone-india-
and-ideamerger/ Vi Website
https://www.myvi.in/about-
us/home?section=consumer The Hindustan Times
https://www.hindustantimes.com/business-news/merged-idea-vodafone-will-become-india-s-largest-
telecomcompany/story-RMYbroj4roUPOB43wvAmdI.html
https://www.ibef.org/industry/telecommunications.aspx

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