Shares in Vodafone (LON:VOD) have jumped about one percent in London in early morning trade, as the telco announced that it is merging its operations in India with local provider Idea Cellular. The move follows the launch of Reliance Industries’ Jio business last year, which has pressured the country’s telecoms market.
As of 08:04 GMT, Vodafone’s share price had added 0.95 percent to 213.40p, outperforming the broader market, with the benchmark FTSE 100 index having slipped into the red and currently standing 0.26 percent lower at 7,405.66 points. The group’s shares have lost more than two percent of their value over the past year, but are up by nearly six percent in the year-to-date.
Vodafone announced in a statement this morning that it had agreed a deal to combine its subsidiary in India with local group Idea. The UK group will own 45.1 percent of the combined company after transferring a stake of 4.9 percent to the Aditya Birla Group for about INR39 billion ($579 million) in cash concurrent with completion of the merger. The Aditya Birla Group will then own 26 percent and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.
“The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India,” Vodafone’s chief executive Vittorio Colao commented in the statement, adding that the combined company “will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies”.
The UK telco noted that the merged group will have almost 400 million customers, 35-percent customer market share and 41-percent revenue market share. While the merger is also expected to generate about INR670 billion in synergies, the Financial Times quoted Chris Lane, an analyst at Bernstein, as warning that “there will certainly be disruption as they seek synergies,” and that the enlarged group would lose three to five percentage points of market share over the next two or three years.