According to Vodafone, the new entity (whose name and brand is still to be determined) will have nearly 400 million customers, a 35 per cent market share and a 41 per cent revenue share.
India's mobile industry was thrown into turmoil with the launch previous year of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman, Mukesh Ambani, as part of his Reliance Industries (RELI.NS) conglomerate. The merger would cut the number of major players in India's telecoms sector down to five, with the new entity taking the top spot, followed by Airtel and Jio.
Vittorio Colao, Chief Executive, Vodafone Group Plc, said: "The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India".
ETX's Wilson said: "Cost synergies are the Vodafone-Idea deal's big selling point".
The two companies, which announced in January that they were in talks, will have to shed spectrum in some areas to meet India's rules, although Colao said it would be "small".
After drifting lower at the start today, by late morning trading, Vodafone shares had edged 0.1%, or 0.2p higher to 211.6p.
Idea said the rough deal price worked out to 72.5 rupees per share but stressed that was only for illustrative purposes and was not the actual price.
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After this stake purchase worth Rs 3,900 crore, the Aditya Birla Group will hold 26%, while Vodafone will own 45.1% in the merged company.
In one of the biggest mergers in the telecom space, Vodafone India and Aditya Birla Group-promoted Idea Cellular on Monday announced their much-awaited amalgamation.
While the two sides will together decide on the CEO, Idea's Himanshu Kapania is expected to steer the combined operations; the choice of chief financial officer will be Vodafone's.
Vodafone India will be deconsolidated by Vodafone and reported as a joint venture post-closing, reducing Vodafone Groups net debt by around United States dollars 8.2 billion. The South Asian country contributes more than 10 per cent of its revenues.
Colao also said the merger makes possible synergies of United States dollars 10 billion.
The all-share merger for both partners excludes Vodafone's 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone deconsolidating Vodafone India.
However, he also noted that Jio's strategy had a time limit and that Vodafone/Idea's new entity would be prepared to compete, saying: "their free data offering is finishing in April, they have to charge, and both Vodafone and Idea have increased data allowances to respond effectively to the newcomer".