The long protracting saga of the Vodafone – Idea Cellular merger may finally come to an end as the DoT (Department of Telecommunications) is all set to give a green signal to approve the merger. According to various reports, the Telecom Minister, Manoj Sinha, has approved the deal by signing on the requisite documents and a formal announcement is expected to be made later today.
Idea Cellular-Vodafone Deal: What Caused the Delay
The deal was mainly complicated by the by the various dues that both telecom operators owe to the Department of Telecommunications as fees for the spectrum allocation, usage charges and license fees. It didn’t help that this would also be one of the largest mergers in Indian Corporate history as well as the largest merger in the Telecom industry. These issues seem to have been overcome by the Department of Telecommunications, who are expected to impose a slew of conditions on the merged entity that they must oblige with.
Idea Cellular-Vodafone Deal: Government’s Conditions
These conditions will include laying down a deposit of Rs. 2,100 as OSTC (one-time spectrum charges), which is the administrative fee corresponding to the entity’s market spectrum share. Another condition is likely to be the requirement of an undertaking from the newly created entity to pay off all outstanding license fee and spectrum charges that both Vodafone and Idea currently owe to the DoT individually. Currently, these dues have stayed at different courts and thus the new entity will have to pay off these fees at various stages when required and demanded.
A source privy to the proceedings said: “The department is likely to issue the letter giving conditional approval by Monday, which will seek the one-time spectrum charge to be paid immediately by Idea, and undertakings to pay dues to be paid in the future, including deferred payments”.
Vodafone is currently the second largest private telecom operator in India with Idea Cellular close on its heels at third place. The merged entity is all set to overtake Bharti Airtel and become India’s largest private telecom operator after the merger goes through. Insiders from Idea have suggested that a shareholders meeting will be held in the company on 26th June and reached a consensus to rename the newly formed entity as Vodafone Idea Ltd. This entity will remain publicly listed in the equity market.
While Vodafone India is expected to initially retain 45% stake in the merged entity, with Ideal Cellular owning 26%, it is expected that over a period of time some more equity will be transferred to Idea Cellular and both entities will eventually own an equal stake in the merged entity. However, despite the equity stake disparage, both companies will have equal ownership rights according to the terms of the merger.
Meanwhile, Vodafone has clarified through a spokesperson that the company doesn’t own any OSTC dues to the DoT, as all their dues have been stayed by different courts. This means that OSTC dues are pending only from the KM Birla owned Ideal Cellular. If Idea does challenge this demand in the telecom tribunal (TDSAT) and a stay is imposed, then there wouldn’t be any hurdles to clear in terms of the merger. Idea Cellular may take cues from a precedent set in a similar merger deal between Airtel and Telenor, where a bank guarantee wasn’t required to be laid down by either entity. This is also one of the reasons why the bank guarantee in this merger deal is also relatively low compared to other mergers.
On the other hand, the merger between Vodafone and Idea is seen to be a strategy to take on the meteoric rise of Mukesh Ambani owned Reliance Jio, which has disrupted the Indian telecom market through its low-cost offerings.