Vodafone, Idea to have equal stakes in the merged entity over a period of time.

The U.K.’s Vodafone and Aditya Birla group firm Idea Cellular on Monday announced that they have kickstarted a mega merger deal.

Vodafone will own 45.1% of the merged entity, after it transfers about 4.9% to promoters of Idea and/or their affiliates for ₹38.74 billion rupees, Idea said. Idea will have the sole right to appoint the chairman.

Kumarmangalam Birla will be the Chairman of merged Vodafone-Idea entity and both the companies will have equal stakes in the merged entity over a period of time.

Shares in Idea rose as much as 14.25% immediately after the merger news but gave up gains to be trading up 3.8%.

Vodafone and Idea began talks for a possible merger in late January this year.

The combined market share of both the telecos add up to 43%, making it the largest telecom firm, surpassing Bharti Airtel. The merger will create an entity with a revenue of around ₹77,500-80,000 crore besides eliminating duplication of spectrum and infrastructure capex, according to India Ratings and Research.

The spectrum of Vodafone India in seven circles and that of Idea in two, whose permits are expiring in 2021-22, is together valued at around ₹12,000 crore as per the last auction price. These permits are not in common circles, and hence there could be potential spectrum capex synergies between the two companies, the report said.

Key take-aways from the merger deal

Entire business of VIL and VMSL, excluding VIL's investment in Indus Towers, international network assets and IT platforms, to vest in co.

On amalgamation of VMSL becoming effective, co shall issue shares of co to VIL equal to 47% of post issue paid-up capital of co.

Vodafone to own 45.1% of combined co after transferring about 4.9% to promoters of Idea and/or affiliates for INR 38.74 billion in cash

Board of combined entity will be comprised of 12 directors including 3 directors appointed by each of Vodafone and Aditya Birla Group

Promoters of Idea, Vodafone have right to nominate 3 directors each

Promoters of Idea have sole right to appoint chairman

Vodafone has right to appoint CFO of company

Appointment of CEO, COO will require approval of both promoters of Idea and Vodafone

Promoters of Idea have right to buy up to 9.5% additional stake from Vodafone under agreed mechanism with view of equalising shareholdings over time

Agreement contemplates completion of proposed amalgamation with a period of 24 months

Until equalisation is achieved, voting rights of additional shares held by Vodafone will be restricted and votes will be exercised jointly

Idea to contribute all of its assets including standalone towers with 15.4k tenancies and 11.15% stake in Indus Towers

Vodafone to contribute Vodafone India including standalone towers with 15.8k tenancies but excluding 42% stake in Indus Towers

Vodafone will contribute 25 billion rupees more net debt than Idea at completion

Post-closing, combined company will be reported as a JV by Vodafone and accounted for under equity method

As combined entity will be jointly controlled by Vodafone & Aditya Birla Group, Vodafone will deconsolidate Vodafone India immediately