The Economic Times
21 March 2017
Billionaire industrialist and Aditya Birla Group chairman Kumar Mangalam Birla and Vodafone CEO Vittorio Colao on Monday announced a complex, multi-phased merger to create a new telecom giant in the world’s second largest market. While the expert narratives suggest a transaction driven by desperation — mounting losses, write-offs and onslaught of Reliance Jio — both Colao and Birla countered the perception by underscoring the complementary footprint and strong synergies behind the deal-making. The cost savings and asset sales alone can take care of the funding requirements in an intensely competitive market, they tell TOI in an interview. Edited excerpts:
The deal construct of this merger is closely watched. Are you anticipating regulatory approvals quickly or do you see any concerns about the 42% revenue share of the merged entity?
Colao: The share of revenue has to be measured only after Jio starts billing. So who knows what will be our revenue share when there is a player who has 100 million customers who are not paying. Second, this is a prepaid market, so we have one year post-completion to get to the threshold. So how much we invest is a function of the target where we want to be. Spectrum breach is small. The amount of spectrum (that’s above the threshold) is either sold or given back. Then there are many rules that are very clear and which have already been applied in seven or eight M&A cases before us. So there isn’t any reason for concern except that as a great champion of ‘Digital India’ being created for the interests of everybody.
The combined entity will require more funds. Is Vodafone committed to investing further, or do you expect Idea to plough in more?
Colao: I don’t think this venture will require additional funding because of the massive synergies it unlocks. The high level of debt will be brought down through the sale of independent towers, through the sale of interest in Indus Towers, and some spectrum sale to comply with regulations. We also expect some market pick-up. This is not an exit from India from our point of view. We have invested in a company of a certain size and we remain invested in a company of a bigger size.
Can you detail how significant are synergistic savings?
Colao: It’ll be $10 billion over the next few years.
Kumar Birla: This is the NPV (net present value) of the synergies. It’s a very big number, between $2 to $2.5 billion annually. We think this company will be self-funded. Anyway both sides remain very committed to the venture.
Is this deal driven by Vodafone’s disappointment with the Indian market?
Colao: I wish these things were driven by happiness. But there are set rules about how and when we consolidate businesses. It’s an accounting rule. We did a similar thing in the Netherlands.
Idea Cellular is buying a 4.9% stake from Vodafone and has an option to buy 9.5% more. How will this be financed?
Kumar Birla: That will be financed by the promoter companies, and there will not be any funding by the publicly listed companies.
Malaysian telco Axiata has been a long-term investor in Idea. Will they have any role in the merger going forward?
Kumar Birla: Axiata has been with us. This is a scheme which has been approved by the board. I think they’ll also follow the maxim of maximising value for their shareholders. Other than that Axiata has no role in this merger.
Any thoughts on how the brand identity will evolve after the merger?
Kumar Birla: We have not defined the identity marketing plan in detail. But we will definitely leverage both the brands which are strong with a lot of recall (Vodafone is stronger in urban areas, while Idea is in semi-urban and rural areas) in their respective markets. We will definitely continue to have both of them. Their strengths are very complementary.
Will the Idea Cellular senior management stay?
Colao: We have not announced who will be the CEO and the top management of the combined entity. It’ll be a co-managed entity. We have equal representation on the board. Mr Birla will be the chairman. Then we will pick the best persons for the key jobs, man or woman. And both shareholders have to be comfortable with the best managers. It’s a single thing.
Is this consolidation driven by Reliance Jio’s entry?
Colao: You speak about Jio, but what about Bharti Airtel which is the market leader and a very strong company. It’s not just a Jio market. There’s also BSNL and Aircel. India remains a very competitive market. Now we will be more competitive as we go together. Why do we go together? We now will be either number one or number two in all circles with the exception of J&K. We will not have less than 10% market share in any circle, which means we can make money and reinvest it. Consolidation is driven by the arrival of data, which was happening in Europe. Data is very capital heavy and consumes a lot of spectrum that that’s why companies go together. So this deal was natural because we were so complementary.
Dr. Pragnya RamGroup Executive President, Corporate Communications & CSRAditya Birla Management Corporation Private LimitedAditya Birla Centre, 1st Floor, 'C' WingS.K. Ahire Marg, WorliMumbai 400 030.
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