Idea Cellular and Vodafone India were in talks for a merger to create India’s largest telecom carrier for the last few weeks. However, nothing was confirmed yet. But today, Idea Cellular has announced that its board of directors has approved the merger of Vodafone India and its fully-owned subsidiary Vodafone Mobile Services Limited.

With this merger, the new telecom entity has become the largest telecom network in the country. Until date, Airtel was recognized as the largest telecom operator in India which will now be pushed to the second spot. Vodafone India’s business barring its investments in Indus Towers will vest in the new entity, which will be renamed at a later stage.

As per the statement from the company, Vodafone will own 45.1% in the combined entity after transferring 4.9% to the promoters of Idea Cellular for ₹3,8740 crore in cash post the merger. Kumar Mangalam Birla and other promoters of Idea Group will hold 26% and the rest will be owned by the public.

While the company has announced the merger, it is expected to get completed by the year 2018. Promoters of Idea and Vodafone will have the right to nominate three directors each. Idea will have its nominee as chairman whereas CFO will be put forth from Vodafone. Both CEO and COO will be a joint decision taken by both parties, said the statement.

As per the agreement, promoters of Idea have the right to acquire up to a 9.5% additional stake from Vodafone with a view to equalize shareholding. If both Idea and Vodafone do not have equal shareholding by the end of the 4th year, after merger is completed, Vodafone will have to reduce its holding to equalize its ownership over the 5th year. Until the share equalisation is complete, additional shares held by Vodafone will be restricted and votes will be exercised jointly.

Ratings agency Fitch said in a statement:

We estimate the merger would create an entity with 390 million subscribers, a leading revenue market share of around 40%, revenue of USD11bn-12bn, and an EBITDA margin of about 28%-30%.

The merged entity will help both the telcos withstand intense price competition in the Indian telco market. According to India Ratings, the combined entity’s operating margins will improve by around 3 percentage points due to cost synergies in networking and selling, general and administrative expenses. It also said that the merged company will have revenues in the range of Rs. 77,500-80,000 crore.

The telecom industry in India is currently going through a consolidation phase with many players looking for a merger. Reliance Communications has already entered into an agreement to merge its wireless business with rival Aircel. Bharti Airtel had earlier this year announced an agreement to buy Norwegian company Telenor’s operations in six Indian states. Even BSNL and MTNL are speculated to be heading for a merger.

Bharti Airtel reported its lowest profit in four years in the October-December quarter. On the other hand, Idea Cellular — the third largest telecom operator in India, posted its first-ever quarterly loss for the same period.

Well, part of this consolidation activities could be due to Reliance Jio Infocomm Ltd, which is backed by billionaire Mukesh Ambani. Along with its debut in September, Jio introduced free voice and data services, undermining industry revenue, and has continued till March 2017.

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