Idea Cellular Surges 35% In Two Sessions On Merger Talks With Vodafone

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Shares of Idea Cellular have skyrocketed 35 per cent to hit high of Rs. 105.70 in the last two trading sessions after the global telecom giant Vodafone Plc on Monday said that it was in talks to merge its Indian unit with Idea Cellular in a move that would create India’s largest telecoms company. The confirmation ended months of speculation that the two operators were exploring a deal to help fend off Reliance Jio whose recent arrival shook up India’s ultra-competitive mobile network market.

“Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone’s 42 per cent stake in Indus Towers) and Idea,” Vodafone said in a statement.

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidating Vodafone India.

“There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” the statement added.

A merger between Vodafone India and the Mumbai-based Idea Cellular would turn India’s multi-billion dollar telecommunications market on its head, according to global brokerage firm CLSA.

Domestic brokerage Edelweiss in a note to its clients said, “The combined entity will have a subscriber base of 382.2 million subscribers with 35.4 per cent subscriber market share and it will have 42 per cent revenue market share (RMS).”

“It will also have concentrated spectrum portfolio with 36.5 per cent of the liberalised spectrum in 1800MHz band, enabling it to deploy higher spectrum per site resulting in higher revenue productivity per site,” said Edelweiss.

The report says that the consolidation of Vodafone and Idea Cellular is unlikely to bring down competition in the telecom industry. It says, “We believe that consolidation is unlikely to result in reduction in competitive intensity as Reliance Jio will continue to disrupt market till it gains volume market share proportionate to its capacity market share.”

Maintaining a cautious stance on the telecom sector, Edelweiss added, “We expect competitive intensity in remaining circles to stay elevated as data capacity utilisation remains low and Reliance Jio (RJIO) aspires to gain market share. We recommend switch from Bharti Airtel to Idea Cellular due to possible synergy benefits for the latter. Maintain cautious stance on the sector.”

As of 10:00 a.m., shares of Idea Cellular traded 8 per cent higher at Rs. 105.50, outperforming the Nifty which was down 0.35 per cent.