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Discount seals Voda-Idea deal

- Merger done, companies will now have to sort out tax and debt issues to keep investors in good humour

March 20: Vodafone group CEO Vittorio Colao admitted today that the telecom giant was selling its stake to the Aditya Birla group at a price that was lower than that warranted by current valuation.

Asked at a conference call with global brokerages why Vodafone had agreed to sell an additional 9.5 per cent stake to the Aditya Birla group during a three-year standstill agreement at a price of Rs 130 per share against a valuation of Rs 160 per share, Colao told an analyst: "Your calculation is correct, but it would be hard to see anybody paying for a 100 per cent of the synergies even before starting to get them. So, we think the value that we have indicated is a reasonable value.

"I think it is 80 per cent more than Idea's undisturbed share price of Rs 72.50 per share (based on a 30-day trading average), which is a pretty high recognition of the expected synergies... But I am not such a good negotiator as to get 100 per cent of synergies from Day 1."

Both Colao and Vodafone chief financial officer Nick Read had characterised its Indian operations as a "special situation" during a February 2 conference call when Vodafone announced its global results for the quarter ended December 30, 2016.

The drag in its India business - which saw average revenue per user tumble 9.7 per cent to Rs 158 per month at the end of the third quarter ended December 30 from a year ago quarter - has been largely attributed to Reliance Jio's entry with its free services that has totally shaken up the industry.

"It is clear that the free services from the new entrant have led to some data leakage for us," Colao had said at that time.

At Monday's conference call, Colao said it was difficult to pin down a date when the discussions with Kumar Mangalam Birla had begun.

He asserted that at no point during the discussions with Birla had Vodafone insisted on control. It was clear from the start that the two sides would be equal partners in the listed entity.

"Sharing control with a local partner will give us more clout," Colao said.

Payout possibility

Although the two partners have agreed on a dividend policy, the Vodafone group CEO said he saw little prospect of the merged entity paying out any dividend in the near term. "First, we need to leverage down," he added.

In February, Vodafone had estimated the net debt in its India operations at 8 billion euros, largely the result of the 2.7 billion euros it spent at spectrum auctions last year.

The Vodafone boss said the deal in India was "great in itself" but would not serve as a model for other geographies.

"We have improved the long-term prospect for this asset (the Indian operations). We have an asset that is listed. Some cash will be liberated. We are improving our debt level thanks to the de-consolidation," Colao added.

Vodafone CFO Read said the financial results of the Indian operations would not be consolidated in Vodafone plc's results to be declared in May under the IFRS rules - and would just merit a one-line mention in the management report.


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