A man speaks on his cellphone in front of a shop displaying the Idea Cellular logo in Mumbai, India. Picture: REUTERS
A man speaks on his cellphone in front of a shop displaying the Idea Cellular logo in Mumbai, India. Picture: REUTERS

Mumbai — Vodafone Group’s Indian unit agreed to merge with Idea Cellular to create a wireless company that is more than twice as big as AT&T by subscribers — and a new leader in a market that is has become even more competitive after India’s richest man offered phone calls for free.

Vodafone will own 45.1% of the combined company, after selling a 4.9% stake in the new entity to billionaire Kumar Mangalam Birla’s holding companies, according to a stock exchange filing Monday. Birla’s companies will take a 26% holding, with the remainder being held by the public. The new company is worth $23.2bn, based on the combined enterprise value of $12.4bn for Vodafone India and $10.8bn for Idea Cellular. Shares of Idea Cellular jumped as much as 14% in Mumbai.

The enlarged wireless operator would have 395-million subscribers, exceeding those of market leader Bharti Airtel. Vodafone would gain a listing in the world’s second-largest wireless market, which it has been considering since at least 2011.

Vodafone and Idea will each control three seats on the board of the new company, which in addition will have six independent directors. Birla will have the right to appoint a chairman.

For Vodafone, the deal would allow it to unload an unprofitable business that has forced the UK carrier to take a $5bn write-down and pump more than $7bn into the unit. Idea’s promoters will buy the 4.9% stake in the merged entity for 38.74-billion rupees ($592m) in cash, on completion of the transaction.

The latest transaction is expected to be completed in 2018, according to the statement. It is the biggest deal to emerge after billionaire Mukesh Ambani’s Reliance Jio Infocomm stormed into the market last year by offering free calls and data, pressuring other carriers to consolidate.

In February, Bharti agreed to acquire Telenor ASA’s Indian business. The Norwegian state-controlled carrier said at the time that prospects for the industry did not warrant further investments.

Birla units, including Aditya Birla Nuvo, own 42% of Idea, according to the company’s website. Malaysian carrier Axiata Group has a 20% stake. Vodafone India is a wholly owned unit of Vodafone.

In the quarter ended December 31, Idea reported its first loss for the group in about a decade. Idea reduced its voice calling rates by 11% and mobile data rates by 15% from the previous quarter. Free calls and data offered by Reliance Jio also reduced data consumers on its network.

Bloomberg

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