Reliance Jio with its disruptive free data offer to garner customers has prompted a mega merger in the Telecom industry. Prior to the merger that is in discussion stages between Vodafone and Idea Cellular, Reliance Communication and Maxis communication (promoters of Aircel) agreed to merge their wireless business to form the fourth largest telecom operator in the country.
Today, Vodafone India has confirmed a potential merger discussion with Aditya Birla Group for an all share merger of Vodafone India ( excluding Vodafone India 42% stake in Indus Towers) and Idea Cellular.
The new combined entity will be India’s largest telecom company with revenues close to Rs. 800,000 million, revenue market share of 43% in India and active customer base market share of 40%. Intra-day Idea Cellular shares jumped by 25% and closed at Rs. 98. Vodafone Plc ( listed at London Stock Exchange) shares gained 2.72% and are currently trading at GBP 199.
Telecom is a capital-intensive industry and with heavy debt on balance sheets of most telecom operators, freebies will be hard to come by. Telecom operators in the country had a total debt of Rs 2.73 trilion on their books in the year 2014-2015, having such heavy debt on the balance sheets, it’s difficult for telecom companies to commence their business at low debt levels. But, acquisitions, merger and joint ventures would help them to improve their financial status and also to unlock shareholders value.