Kumar Mangalam Birla may head Vodafone and Idea combine

Mumbai: Details emerging of early talks between Vodafone India Ltd and Idea Cellular Ltd indicate that Aditya Birla Group chairman Kumar Mangalam Birla could be chairman of the merged entity.

Two people familiar with the talks between the two said the merged entity would likely have 12 directors on its board—three from either side and six independent ones. Neither wished to be identified because the talks are at a very preliminary stage.

An Idea spokesperson declined to comment. Spokespersons for Vodafone India and its parent Vodafone Group Plc did not respond to e-mails seeking comment. A spokesperson for the Aditya Birla Group said that any talk of appointments is premature.

One of the two people said Birla appears to be the unanimous choice for chairman. This would also help Vodafone Group make a case that it has spun off or de-consolidated its subsidiary Vodafone India, this person added. “Vodafone can’t be seen as having greater control in the merged entity.”

To do this under the International Financial Reporting Standards (IFRS), “a company has to demonstrate that it no longer has operating or management control in the subsidiary”, said Charanjit Attra, partner, SR Batliboi and Associates Llp.

Vodafone Group will have to prove this to its statutory auditors, the first person said.

According to the two people, Vodafone’s stake in the merged entity will fall below 51% although it would remain higher than the Aditya Birla Group’s.

“In an ideal situation, both sides should hold around 37% each in the merged entity, but for that to happen, the Aditya Birla Group will have to infuse fresh funds upwards of $1 billion,” the second person said.

An infusion of funds by the Birla group hasn’t been ruled out, this person added, “but the two sides are also considering an arrangement where the Aditya Birla Group holds between 26% and 30%, but also has special rights”.

The merged entity may use the Vodafone brand under licence from Vodafone Group.

The proposed merger of Vodafone India and Idea Cellular will create the nation’s largest telecom firm with combined revenue of Rs78,000 crore and a 43% share of the market hitherto dominated by Bharti Airtel Ltd, which reported annual revenue of Rs50,008 crore from local telecom operations in the last financial year.

The consolidation has been triggered partly by the entry of Reliance Jio Infocomm Ltd, which has invested a staggering $25 billion (about Rs1.5 trillion) and launched its operations last September by offering free voice and data services till 31 March.

Vodafone Group had to write off €5 billion (about Rs35,000 crore) in its Indian business last year. Idea posted a net profit of Rs3,080 crore in FY16, compared with Rs3,193 crore in FY15. The company had net consolidated debt of Rs41,594 crores as of 31 March 2016.