Vodafone-Idea merger: Behind the scenes report on corporate & legal intricacies
August, 01st 2018
The swift way in which the Idea-Vodafone merger is progressing under a year shows the improvement in ease of doing business in India.”
That was Vittorio Colao at the World Economic Forum (WEF) governors’ meeting in Davos earlier this year. Though a vocal critic of the labyrinthian regulations and bureaucracy of the world’s largest democracy, the chief executive of Vodafone Group Plc was seemingly delighted about the record speed of regulatory approvals that were coming along after Vodaf ..
And then the call dropped. Suddenly, chances of the whole thing getting tripped up or entangled in legalities became very real, and that meant a hit on $10 billion worth of synergies. By mid-June, the tide had turned for the worse. The Department of Telecom (DoT) surprised all by seeking a second round of legal opinion from the Assistant Solicitor General (ASG) on the demand for dues — always a contentious issue as most demands such as licence fee, spectrum usage charges and one-time spectrum charge (OTSC) had been stayed by courts. According to current mergers and acquisitions (M&A) regulations, only OTSC needed to be paid up.
In his first opinion, the ASG had said the merger of Vodafone’s six subsidiaries with Vodafone Mobile Services (VMSL) in 2014-15 must be completed and balance OTSC paid. But then DoT sought to clarify if demands related to the merger of six units with VMSL are also to be raised, along with those related to the present merger between Idea and Vodafone. Divergent views also emerged within the department on the mode of seeking dues. One side argued that all dues on VMSL must be sought in cash, while the other said it could be a combination of cash and bank guarantees.
Even though DoT needed to showcase the ‘ease of business’ mantra that the government is trying to live by, it didn’t want any post facto finger-pointing or controversies from vigilance or other agencies. Thus, it decided to proceed with extreme caution. The matter was also very delicate inasmuch as the merger was the first 100% FDI proposal, into Idea Cellular, to come up directly for departmental clearance after scrapping of the Foreign Investment Promotion Board (FIPB).
“No one wanted to take any decision in haste or give any leeway because 10 years later, no one wants to have a legal case on their hands alleging any wrongdoing,” says an official who was dealing with the issue at that time. Another point of clarification was the date from which bank guarantees for OTSC be sought from Idea on airwaves beyond 4.4 MHz in 11 circles, say sources. OTSC dues are based on DoT rules that require a telco holding more than 6.2 MHz in a circle between July 2008 and December 31, 2012, to pay a marketlinked price for the excess spectrum held.
Likewise, the telcos may be told to pay the market price for airwave holdings beyond 4.4 MHz per circle between January 2013 and the expiry of their respective licences. DoT had first raised a claim for more than Rs 8,100 crore, including OTSC, of which VMSL paid Rs 2,450 crore. The balance remained as the case was pending in the telecom tribunal. Finally, the telecom department asked the operators to pay more than Rs 7,200 crore as dues. Both telcos asked for recalculation as they felt the final numbers should be lower than what was being asked. “We were comfortable at that point. But surprise is the only constant in the way the Indian government works…” quips a senior executive at one of the two companies on condition of anonymity.
DOT THE Is, CROSS THE Ts And from then on, it became a day-to-day affair. Executives of both sides spent hours daily in the corridors of power, tracking the movements of the file on a nearly hourly basis — from the junior levels to the secretary’s office and then to the minister. As days began to pass, the profile of company visitors to DoT went up several notches. Kumar Mangalam Birla, chairman of the Aditya Birla Group, met senior DoT officials twice in the first nine months since announcing his telecom company’s merger with global operator Vodafone India at the end of March 2017.
But then, as the tag of the fastest and smoothest M&A deal in India Inc started to lose shine, the frequency of meetings increased. Birla, in fact, has met DoT officials thrice in the past three months. Colao has also travelled from London to India twice to meet the telecom secretary and telecom minister Manoj Sinha to ensure there was no slip between the cup and the lip. On his second visit, soon after a conditional approval was granted, he was accompanied by Vodafone Group chief financial officer Nick Read, who will soon replace Colao.
In the lead-up to the merger, Vodafone had also sent its group shared services chairman Ravinder Takkar, besides outgoing Vodafone India managing director Sunil Sood, into the arena to move things along. Idea Cellular managing director Himanshu Kapania too joined in. Even the Prime Minister’s Office was approached by the merging telcos, according to some company officials. Timelines were critical. The Indian telecom units of UK’s Vodafone Group Plc and the diversified Aditya Birla Group were desperate to complete the merger. They were losing Rs 200 crore a day and the delay had held up critical unlocking of an estimated $10 billion of cost and capital expenditure synergies that the combined entity needs to stay competitive on the 4G front, where Reliance Jio Infocomm and Bharti Airtel have taken the lead. etc