PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH,

DEPARTMENT OF LAW, INDORE

SUBJECT – ASSIGNMENT OF MERGER & ACQUISITION.

CASE – VODAFONE & IDEA, 2018.

SUBMITTED BY SUBMITTED TO
KANISHK BANSAL Mr. JALAJ SIRMANDAL

BBA LLB 10TH SEMESTER Ms. SANMATI RATHORE

Roll No. 182232

 LIST OF ABBREVATION

1. AIR - All India Reporter

2. ARPU: Average Revenue Per User

3. EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
4. M&A: Mergers and Acquisitions
5. NPA: Non-Performing Asset
6. RoE: Return on Equity
7. RoIC: Return on Invested Capital
8. TRAI: Telecom Regulatory Authority of India
9. VIL: Vodafone Idea Limited (the merged entity of Vodafone India and Idea
Cellular)
10.VoLTE: Voice over Long-Term Evolution (a standard for high-speed wireless
communication)
11.2G, 3G, 4G, 5G: Different generations of mobile network technology
 FACTS OF CASE

Vodafone and Idea are two telecommunications companies that merged in 2018
to become Vodafone Idea Limited, which is now one of the largest
telecommunications companies in India. The merger was a significant event in the
telecommunications industry, and it is considered a case study in corporate
strategy and mergers and acquisitions. Here are some facts about the Vodafone
and Idea case study in detail:

The merger between Vodafone and Idea was announced in March 2017, and it
was completed in August 2018. The merger was valued at $23 billion, making it
one of the largest mergers in Indian corporate history.

Vodafone and Idea were both struggling to compete with Reliance Jio, a new
player in the Indian telecommunications market. Reliance Jio entered the market
in 2016 with low-priced data plans, disrupting the industry and putting pressure
on established players like Vodafone and Idea.

The merger between Vodafone and Idea was driven by the need to create a
stronger player in the market that could better compete with Reliance Jio. The
merged entity has a customer base of over 400 million and a market share of
around 32%.

The merger between Vodafone and Idea was not without its challenges. The two
companies had different corporate cultures, and there were concerns about how
the merger would impact employees and customers. The merged entity had to
undertake significant restructuring efforts to streamline operations and reduce
costs.

The merger between Vodafone and Idea also faced regulatory hurdles. The Indian
government had concerns about the impact of the merger on competition in the
market. To address these concerns, the merged entity had to divest some of its
assets and agree to certain conditions, such as maintaining a minimum level of
service quality.
 ISSUES (REASON FOR MERGER)

The merger of Vodafone and Idea was primarily driven by a number of factors,
including:

 Market consolidation: The Indian telecom market was highly fragmented

with several players vying for market share. The merger allowed Vodafone
and Idea to combine their strengths and resources to better compete with
other players in the market.
 Spectrum and network synergies: The merger allowed the combined entity
to pool their spectrum and network resources, resulting in a more efficient
and effective use of these assets. This also allowed them to expand their
network coverage and improve the quality of their services.
 Cost savings: The merger allowed the companies to achieve significant cost
savings by combining their operations, eliminating redundancies, and
streamlining their processes.
 Diversification of services: The merger allowed the combined entity to
offer a wider range of services to customers, including voice, data, and
digital services, which helped them to stay competitive in the rapidly
evolving telecom market.
 Stronger financial position: The merger allowed the companies to pool
their financial resources and create a stronger balance sheet, which
enabled them to invest in new technologies and expand their business in
the long term.

RELEVANT RULES APPLICABLE

The Vodafone-Idea merger, which was completed in 2018, was one of the biggest
mergers in the Indian telecom industry. The merger involved two of India's largest
telecom operators, Vodafone India and Idea Cellular, combining their operations
to create a new entity called Vodafone Idea Limited. The merger was subject to
several rules and regulations, some of which are outlined below:
 Competition Law: The Vodafone-Idea merger was subject to scrutiny under
India's Competition Law. The Competition Commission of India (CCI) had to
approve the merger to ensure that it did not lead to a monopolistic market.
Foreign Direct Investment (FDI) Policy: As Vodafone is a foreign company,
the merger was subject to India's FDI policy. The policy allows foreign
companies to hold up to 100% equity in Indian telecom companies subject
to certain conditions. The Vodafone-Idea merger complied with the FDI
policy as the foreign shareholding in the new entity did not exceed 100%.
 License Fee and Spectrum Usage Charges: The Vodafone-Idea merger
resulted in the creation of a new entity, and as such, the new entity was
required to obtain fresh licenses and pay license fees and spectrum usage
charges as per the prevailing rates. The merged entity was also required to
pay dues related to license fees and spectrum usage charges that were
pending
 Merger and Acquisition (M&A) regulations: The merger of Vodafone and
Idea was subject to the regulations and approvals of various government
bodies, including the Competition Commission of India (CCI) and the
Department of Telecommunications (DoT).
 Spectrum sharing and trading rules: Spectrum is a crucial resource for
telecom operators, and the Indian government has put in place rules for
sharing and trading of spectrum between operators. As part of the merger,
Vodafone Idea was required to comply with these rules and seek approvals
for spectrum sharing and trading agreements with other operators.
 Financial regulations: The merger involved a significant amount of capital
and financial restructuring, and Vodafone Idea had to comply with various
financial regulations, including those related to foreign investment, debt
financing, and taxation.
 Employee and labor laws: The merger also had an impact on the
employees of both Vodafone and Idea, and the new entity had to comply
with employee and labor laws related to compensation, benefits, and
employment contracts.
 ARGUMENTS

The Vodafone and Idea case study is a complex one that involves various aspects
of business strategy, mergers and acquisitions, and the telecommunications
industry. Here are some arguments that can be made regarding this case study:

Argument 1: The merger was necessary for both companies to survive

One argument that can be made in favor of the Vodafone-Idea merger is that it
was necessary for the survival of both companies. The telecommunications
industry is highly competitive, and both Vodafone and Idea were facing significant
challenges in terms of declining revenue and increasing competition. By merging,
the two companies were able to combine their resources

Argument 2: The merger was a strategic mistake

On the other hand, one could argue that the merger was a strategic mistake.
While the merger did provide some benefits in terms of cost savings and
increased scale, it also created significant challenges in terms of integrating the
two companies' operations and cultures. Additionally, the combined company
was burdened with a significant amount of debt,

Argument 3: The merger has been beneficial for customers

Another argument in favor of the merger is that it has been beneficial for customers.
The combined company has been able to offer a wider range of services and products,
as well as improved network coverage and quality. Additionally, the merger has helped
to prevent a monopoly in the Indian telecommunications market, which could have had
negative consequences for consumers.

Argument 4: The merger has been detrimental to employees

One argument against the merger is that it has been detrimental to employees. The
combined company has had to make significant layoffs in order to reduce costs and
improve efficiency, which has had a negative impact on the employees who lost their
jobs. Additionally, there have been reports of low morale and a lack of clarity regarding
the company's strategy and direction.
 RATIO OF JUDGEMENT

The merger was a significant event in the Indian telecommunications industry.

The merger created the largest telecom operator in India, with a market share of
around 35%. Ratio judgments, also known as relative valuation, involve comparing
the financial performance and ratios of a company to those of its competitors or
the industry as a whole. The purpose of ratio judgments is to determine the value
of a company relative to its peers, rather than to determine the absolute value of
the company.

In the case of Vodafone and Idea, the two companies were evaluated based on
various financial ratios such as price-to-earnings ratio, price-to-book ratio, and
enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and
amortization) ratio. The ratios were compared to those of other companies in the
Indian telecommunications industry, such as Reliance Jio, Airtel, and BSNL.

The evaluation process involved both quantitative and qualitative analysis. The
quantitative analysis focused on the financial performance and ratios of the two
companies, while the qualitative analysis focused on the strategic fit of the two
companies and their potential for growth and profitability in the future.

Based on the ratio judgments and other evaluation criteria, the terms of the
merger were determined. The merged entity, known as Vodafone Idea Limited,
had an enterprise value of approximately $23 billion and a subscriber base of
around 430 million customers. Vodafone owned a 45.1% stake in the merged
entity, while Idea owned a 26% stake. The remaining stake was owned by public
shareholders.

However, the merged entity faced significant challenges after the merger,
including a highly competitive telecom market, increased debt, and regulatory
issues. As a result, the company struggled to maintain its market share and
profitability. In November 2019, Vodafone Idea reported a loss of approximately
$7 billion for the second quarter of the financial year, the highest ever reported
by an Indian company.
 ANALYSIS

The merger of Vodafone and Idea is a significant case study in the

telecommunications industry. The merger was announced in 2017 and completed
in 2018, creating India's largest telecom operator with over 400 million
customers. Here is an analysis of the merger and its impact on both companies.

Reasons for the merger: Vodafone and Idea decided to merge their operations to
create a stronger competitor in the Indian market. Both companies were facing
intense competition from Reliance Jio, which disrupted the market with its low-
cost data plans. The merger allowed Vodafone and Idea to pool their resources
and create a stronger network to compete with Jio.

Financial impact: The merger had a significant financial impact on both

companies. The combined entity had a market share of around 40%, making it the
largest player in the Indian telecom industry. The merger also helped the
companies reduce costs by sharing infrastructure and network resources.
However, the merger also led to significant debt for the newly formed company,
which had to be managed carefully.

Operational impact: The merger had a significant impact on the operations of

both Vodafone and Idea. The companies had to integrate their operations, which
required significant resources and time. The integration process involved
combining their IT systems, networks, and distribution channels, which was a
challenging task. However, the merger helped the companies improve their
operational efficiency by sharing resources.
Impact on customers: The merger had a positive impact on customers as it led to
better network coverage and quality. The merger also allowed the companies to
offer more competitive plans and pricing, which benefited customers. However,
there were some concerns regarding the merger's impact on customer service, as
the combined entity had to manage a larger customer base.

Regulatory impact: The merger had to go through regulatory approvals from

various agencies, including the Competition Commission of India (CCI) and the
Department of Telecommunications (DoT). The CCI approved the merger with
some conditions, including the divestment of certain assets. The DoT also
approved the merger but imposed a penalty on the companies for failing to
comply with certain conditions.
 PRINCIPLE LAID IN THE CASE

The merger between Vodafone India and Idea Cellular was one of the most
significant mergers in the Indian telecom industry. The merger was announced in
March 2017 and was completed in August 2018, creating the largest telecom
operator in India. The merger was based on several principles that were laid out
by the companies during the merger process.

 Synergies: One of the key principles of the merger was to create synergies
between Vodafone and Idea, which would enable the combined entity to
offer a better customer experience and create operational efficiencies. The
merger was expected to result in significant cost savings through the
consolidation of network infrastructure, distribution channels, and IT
systems.
 Complementary strengths: The merger was based on the idea of combining
the complementary strengths of Vodafone and Idea. Vodafone had a strong
presence in urban areas, while Idea had a stronger presence in rural areas.
The combined entity was expected to have a pan-India presence and offer a
range of services to customers across the country.
 Customer-centric approach: The merger was based on a customer-centric
approach, which aimed to provide a better customer experience to the
subscribers of both Vodafone and Idea. The combined entity was expected
to offer a wider range of products and services to customers and provide
better network coverage and quality.
 Brand equity: Vodafone and Idea were both well-established brands in the
Indian telecom industry, and the merger was expected to leverage the
brand equity of both companies. The merged entity was expected to offer a
stronger brand image and a more compelling value proposition to
customers.
 Strong leadership: The merger was based on the idea of having strong
leadership to steer the combined entity. The management team of the
merged entity was expected to have a mix of leaders from both Vodafone
and Idea, with the aim of creating a culture of collaboration and innovation.
  Operational excellence: The merger was based on the principle of
operational excellence, which aimed to create a lean and efficient
organization. The combined entity was expected to have a streamlined
organizational structure, with a focus on delivering high-quality services to
customers at a lower cost.

Overall, the merger between Vodafone India and Idea Cellular was based on a set
of principles that aimed to create a stronger and more competitive entity in the
Indian telecom industry. The merger was successful in achieving its objectives and
has created a leading telecom operator in India with a strong presence across the
country.
 CONCLUSION

The merger of Vodafone and Idea, two of India's leading telecom companies, was
one of the biggest mergers in Indian corporate history. The merged entity,
Vodafone Idea Limited, became the largest telecom company in India, with a
subscriber base of over 400 million.

However, the merger faced numerous challenges, including intense competition

from Reliance Jio, mounting debt, and regulatory hurdles. The company struggled
to keep up with the changing market dynamics and the increasing demand for
data services.

The company also faced legal challenges, including a significant tax dispute with
the Indian government, which impacted its financial performance. The company
had to raise significant amounts of debt to pay off the tax dues, which further
increased its debt burden.

Despite these challenges, Vodafone Idea Limited continues to operate in the

Indian telecom market. The company has taken several measures to improve its
financial position, including a fundraising of $3.6 billion and the monetization of
its assets. The company has also started focusing on providing better customer
service and increasing its 4G network coverage.

In conclusion, the Vodafone and Idea merger was a significant event in the Indian
telecom industry, and while the merged entity has faced several challenges, it
continues to operate and compete in the market. The future of the company
depends on its ability to adapt to the changing market dynamics, reduce its debt
burden, and improve its network and customer service.