Shares in Vodafone PLC (LON:VOD) topped the FTSE100 leader board today after the mobile phones giant revealed it is in talks to merge its problematic Indian operations with rival Ideal Cellular.
In a short statement, Vodafone said it was in talks with Ideal’s owner, Indian conglomerate Aditya Birla about an all-share deal that could help the two groups counter fierce competition in the country’s mobile market.
The UK firm said any merger would involve issuing new shares in Ideal to Vodafone and would result in Vodafone deconsolidating Vodafone India.
It added that any deal would exclude the 42% stake held by Vodafone in Indus Towers.
But, Vodafone said: “There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction.”
In early trading, Vodafone shares were up over 3%, or 6.25p at 199.60p.
Indian tiger taming …
Neil Wilson, senior market analyst at ETX Capital, said: “We have no more details than that but it seems Vodafone is taking the Indian tiger by the scruff.”
He added: “India has become a trouble-spot for Vodafone, with losses there severely hurting the rest of the group. Vodafone recently posted a whopping €5bn write-down from ‘increased competition’ in India. This was down to a 14% drop in data prices, caused by free promotional offers from Reliance Jio as it shakes up the market by offering almost free data.
“Indeed a vicious price war in India means the group could post its first operating loss in ten years in 2017.”
Wilson said: “The Idea tie-up looks like a way to limit the casualties on either side. A merger could help the combined group maintain higher prices and take on the likes of Reliance Jio. Something had to be done and this merger might be the way to strengthen Vodafone’s hand in the Indian price war.”
Government clashes …
Europe's largest mobile phone operator was said last year to be preparing an initial public offering of its India unit, but was understood to have shelved the move amid concerns over the aggressive entry of new player Reliance Jio into the market.
Vodafone has also repeatedly clashed with the Indian government since it paid US$11bn for a 67% stake in Hutchison Whampoa’s mobile phone business in 2007.
Last year, India warned Vodafone it may seize the telecoms giant’s assets in the country if it does not pay a disputed 142bn rupee (£1.5bn) tax bill.
In 2012 India’s Supreme Court ruled that Vodafone was not liable for payment of any tax on the acquisition but the government then changed the law later that year to enable it to tax such deals retrospectively, demanding more than $2bn be paid on the deal.
In 2014 Vodafone then sought international arbitration of the dispute, which has still not been settled.
The UK firm has offloaded a number of overseas businesses in the past year, merging itsoperations in New Zealand with Sky PLC (LON:SKY), and merging its business in the Netherlands with Liberty Global PLC (NASDAQ:LBTYA).