The Vodafone Group plc (LON:VOD) (LSE:VOD.L) share price is flat after it announced the merger of its subsidiary Vodafone India with Idea. This created India’s largest telecoms operator, with the country’s widest mobile network.
The merger is one of equals between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement. The merger ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is $12.4 billion for Vodafone India and $10.8 billion for Idea excluding its stake in Indus Towers. This values Vodafone India at 6.4x EV/LTM EBITDA.
The merger between Vodafone India and Idea is expected to yield substantial cost and capex synergies. In my view, they could boost Vodafone’s share price, since they have an estimated net present value of $10 billion after integration costs and spectrum liberalisation payments. There is an estimated run-rate savings of $2.1 billion on an annual basis by the 4th full year post completion.
Vodafone will own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for $579 million in cash. Aditya Birla will then own 26% of the combined group and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time.
In the last year, Vodafone’s share price has dropped 2.9%. That’s ahead of the share price movements of other TMT stocks such as BT Group plc (LON:BT.A) (LSE:BT.A.L), SKY PLC (LON:SKY) (LSE:SKY.L), Talktalk Telecom Group PLC (LON:TALK) (LSE:TALK.L) and ITV plc (LON:ITV) (LSE:ITV.L). SKY is 3.3% lower, Talktalk is down 24%, BT’s share price is 29% lower and ITV has dropped 9%.
In my view, Vodafone’s share price could continue to perform well on a relative basis. I think its overall strategy is sound and I feel today’s news is positive for the company, due mainly to the potential synergies on offer. I’m also optimistic about the outlook for BT and ITV shares, but feel Vodafone has the most appealing diversity and growth profile within the stocks discussed from the TMT sector.