Vodafone is to merge its Indian operation with Idea Cellular in a deal that will create the Asian country’s biggest telecoms firm.
The British-based giant said it has struck an agreement with Idea’s owner, the Indian conglomerate Aditya Birla Group, which will see it hold a 45% stake in the new entity. Aditya Birla Group will own 26%, with the option to acquire more shares from Vodafone.
Shares in Vodafone were broadly flat in morning trading at 211.2p.
Neil Wilson, senior market analyst at ETX Capital, said: “A sensible move by Vodafone as it just doesn’t have the appetite to fight a long and bitter price war on its own. A unit that does little for free cash is better let go its own way for now.”
Vodafone said there would be “substantial” cost savings to be made off the back of the deal, estimated to be around $10bn. The new firm will cater to almost 400 million people.
Vodafone chief executive Vittorio Colao said: “The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian.”
Vodafone cautioned in February that it will meet the lower end of its full-year earnings outlook as it faces mounting competition in the UK and India. The South Asian country’s mobile market has become increasingly competitive in recent years, and experts believe the Idea merger is one way of seeing off competition from a new operator, Reliance Jio.
Aditya Birla group chairman Kumar Mangalam Birla said: “For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”