Vodafone is in talks about a merger of its Indian operations with rival Idea Cellular, a deal that would create a mobile network with around 370m users and form one of the largest telecoms companies in the world.
The British mobile operator said in a statement on Monday that it was “in discussions” with Aditya Birla Group about an all-share deal.
Vodafone shares rose more than 3 per cent to 199p in early trading on hopes a deal would help counter competition from aggressive new market entrants. Idea Cellular’s shares rose 26 per cent after Indian press reports of a possible deal, valuing the company at Rs354.3bn (£4.2bn).
“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India,” the company said. “There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction.”
The Indian telecoms market has long been tipped for consolidation, with Vodafone seen as a likely buyer of assets. It had planned to float its Indian operation which would have provided it with capital to make acquisitions as well as putting a value on its own local operation.
However, the launch of Jio last year by Reliance Industries — an oil products group that is the country’s second-largest listed company — has rocked the industry.
Reliance chairman Mukesh Ambani’s decision to plough $25bn into the new venture, which has offered free 4G services to customers since its September public launch, has attracted 70m customers and forced the existing networks to reconsider their positions.
Jio’s impact came to light when Vodafone took a €6.3bn writedown in November to reflect its lower growth prospects. At that point Vodafone said it expected further pressure in India, but that the long-term prospects of the market remained strong.
Investors have long questioned whether Vodafone should cut its losses in India given the huge cost it has spent building up the business and the recurring issues around tax.
Talks with Idea will continue to resolve who retains management control of the enlarged unit and whether there would be any regulatory risks such as how much spectrum a merged company would control.
Vodafone’s 42 per cent holding in Indus Towers, a joint venture with Bharti and Idea, would not be included in the merger.
Dhananjay Mirchandani, an analyst with Bernstein, said: “That Reliance Jio’s entry and it’s hugely disruptive pricing move to rapidly build up scale would lead to consolidation was becoming increasingly obvious. Vodafone’s confirmation of talks with Idea fits that mould, although the speed at which this is unfolding is indeed surprising.”
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