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Idea and Vodafone India Merge

Vodafone India and Idea Merger Update

Idea Cellular Limited (NSE: IDEA) (“Idea”) announced the intention to raise up to INR67.5 billion (€882 million)1 of equity. This will be achieved through a INR32.5 billion (€425 million) preferential allotment to the Aditya Birla Group entities (“ABG”) and Idea’s Board has also formed a committee which will evaluate the best option for raising up to an additional INR35.0 billion (€457 million) of equity through a further preferential allotment, qualified institutional placement, rights issue or such other route that Idea’s Board determines is in Idea’s best interest. The proceeds from this capital raise, in addition to the INR78.5 billion (€1.0 billion) of proceeds from the announced disposals of Vodafone India’s and Idea’s standalone tower businesses, will be used to strengthen the balance sheet of the merged entity (Vodafone India and Idea).

ABG will increase its ownership in Idea from approximately 42% to approximately 47%, on a fully diluted basis2, after the preferential allotment. ABG’s ownership may change further depending on the form, size and result of the second tranche of the capital raise.

As a consequence of the change in shareholding in Idea following the capital raise, ABG and Vodafone have agreed that ABG will buy a minimum of 2.5% of the merged entity from Vodafone, or such higher stake required in order for ABG to ultimately own at least 26% of the merged entity3. Consequently, Vodafone will receive minimum proceeds of INR19.6 billion (€256 million) from such sale and Vodafone’s ownership in the combined entity is expected to be approximately 47.5% at completion. The aforementioned changes to the capital structure were already contemplated in the scheme of arrangement for the merger. Vodafone’s stake in the combined entity in excess of 45.1% will not be subject to any lock-up after closing and Vodafone will be free to sell the relevant shares without restrictions.

As per the agreement entered into on 20 March 2017, Vodafone India’s contribution of net debt to the merged entity and Vodafone Group’s funding requirement will be dependent on Idea’s net debt at completion of the merger, as well as customary closing adjustments, but is not affected by proceeds received in relation to the announced disposals of Vodafone India’s and Idea’s standalone towers and a potential monetisation of Idea’s 11.15% stake in Indus Towers. Vodafone will contribute INR24.8 billion (€323 million) more net debt than Idea at completion.

Illustratively, based on Idea’s net debt as at 30 September 20174 of INR567.6 billion (€7.4 billion) adjusted for (i) the INR32.5 billion (€425 million) preferential allotment announced today, and (ii) the additional equity raise of up to INR35.0 billion (€457 million) being evaluated by Idea’s Board, Vodafone India’s net debt contribution would have been INR524.8 billion (€6.9 billion). Given Vodafone India’s net debt position of INR618.3 billion (€8.1 billion) as at 30 September 2017, this would have implied a need for INR93.5 billion (€1.2 billion) of additional equity funding by Vodafone Group. After taking into account the minimum proceeds to be received by Vodafone from the sale of a minimum of 2.5% of the combined entity to ABG at completion, the net funding contribution by Vodafone Group would have been INR73.9 billion (€1.0 billion)5 (please refer to the table below for further details).

CCI approval has been granted and the scheme has been approved by the shareholders and creditors of both Idea and Vodafone India, with the NCLT and DOT approvals pending. As such, Vodafone and Idea now expect the merger to be completed during the first half of calendar 2018.

Illustrative Vodafone India net debt contribution and Vodafone Group funding requirement based on Idea’s net debt as at 30 September 20175

As at 30 September 2017

INR million

€ million

Vodafone India actual net debt (i)

618,333

8,079

Idea net debt4

567,568

7,415

Announced preferential allotment

(32,500)

(425)

Further capital raise to be evaluated by the Board of Idea

Up to (35,000)

Up to (457)

Additional net debt contributed by Vodafone India

24,758

323

Vodafone India net debt contribution (ii)

524,826

6,857

Minimum 2.5% stake purchase in the merged entity by ABG (iii)

19,605

256

Vodafone Group funding requirement (i) – (ii) – (iii)

73,903

966

Except as described in this announcement, there has been no significant change (as defined in Listing Rule 10.4.2(3)) affecting any matter contained in the original announcement of the merger made on 20 March 2017 and no other significant new matter has arisen which would have been required to be mentioned in that original announcement if it had arisen when the original announcement was released.

Source: Vodafone media announcement
  1. Based on INR / € FX rate of 76.54 as at 3 January 2018 
  2. Fully diluted shares as per the transaction announcement on 20 March 2017 
  3. On 20 March 2017 Vodafone announced that ABG was going to acquire a 4.9% stake in the merged entity from the shareholders of Vodafone India for INR39 billion (€506 million) at completion, in order to reach a shareholding of 26% in the merged entity 
  4. Idea net debt as at 30 September 2017 including certain pro-forma adjustments at the time of the merger announcement as per transaction definitions  
  5. The net funding requirement for Vodafone Group at completion will change based on a number of factors including but not limited to: (i) the amount of net debt in Idea and Vodafone India at completion, (ii) the amount of capital raised by Idea, (iii) customary closing adjustments including working capital, and (iv) the size of the stake in the merged entity acquired by ABG from the shareholders of Vodafone India. Such net funding requirement is not affected by proceeds received in relation to the announced sale of Vodafone India’s and Idea’s standalone towers or a potential monetisation of Idea’s 11.15% stake in Indus Towers
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