Voda Idea ! ~ Share Price Bonanza for Idea Cellular on Merger Talks with Vodafone

Voda Idea ! ~ Share Price Bonanza for Idea Cellular on Merger Talks with Vodafone

Given the cut throat competition in the Telecom Provider space,Consolidation has been inevitable for quite some time & with just a handful of players it was not rocket science to predict who would make the first move

Insider Play ?

Obviously Insiders knew of the preliminary talks and their friends in the Media were fed the news to facilitate the likes of Economic Times splashing a Vodafone & Idea Merger scenario in their print edition yesterday

Then it was the Stock Channels turn to take credit as Vodafone confirmed such talks yesterday

Ironically neither BSE nor NSE Authorities received any pro-active notification from the listed Birla Group Company Idea Cellular.It was on the Exchanges re-actively seeking a clarification did the company send one to confirm they were in preliminary talks with Vodafone

But look at the recent chronlogical events that prefaced yesterdays drama & draw your own conclusions

August 23,2016 ~ Idea Cellular calls all such merger speculation baseless and absolutely false & sees it’s share price correct back into the 90’s after the surge past Rs 100   …It drifted even lower below Rs 70 in the last quarter and then regained to remain in the Rs 70 to Rs 78 range till Friday ,January 27,2017

January 11,2017 ~ Idea Cellular notified the exchanges that Q3 FY 17 December 2016 results will be declared on January 23,2017.

January 13,2017 ~ Idea Cellular notifies The Shareholding as on December 31,2016.Pilani Investments,a Birla Holding Company picked up 8168500 shares or a 0.23% equity stake  in Idea Cellular in the quarter ended December 2016 taking the Promoter Birla Group stake to  42.45%

January 19,2017 ~ Idea Cellular notified again that the Q 3 FY 17 Results declaration has been postponed and a new date will be conveyed

Yesterday,January 30,2017 ~ Economic Times carried the Merger Scenario forcing the Exchanges to seek Clarification from Idea Cellular.Vodafone had already confirmed to the Media in the morning itself that talks indeed were being held

Idea Cellular Share Price simply rocketed over 25% to cross Rs 100 from the Friday Close of @ Rs 78  before closing at Rs 98 yesterday, .It also is in F & O Segment with a lot size of 7000

Today,Tuesday,January 31,2017  it has surged another nearly 20% to record a high of Rs 118.90 & as I blog this @ 1.30 pm it’s at @ Rs 116 with a Market Cap now @ Rs 42000 crs from under Rs 30000 crs just two days ago on Friday,January 27,2017

Was The Postponing of Q 3 FY 17 Results on January 19,2017  and yesterday’s confirmation of Merger Talks a pre-meditated ploy to trap all who had shorted Idea Cellular in the Rs 70’s in expectation of  announcement of a huge loss in Q 3 ?  SEBI may just enquire

Some Quick Valuations to give you an Idea (yes,pun intended) 

Idea Cellular ~ at Rs 116 the Market Cap is @ Rs 42000 crs with Equity of FV Rs 10 at Rs 3601 crs. Market Listed Leader in the space Bharti Airtel too has surged and at Rs 350 (FV Rs 5) has a Market Cap of @ Rs 140000 crs with Equity at Rs 1999 crs

Unlisted Vodafone is also a market leader & should have a Valuation exceeding Rs 100000 crs.In April 2014 the Piramal Group sold it’s entire 11% stake of 45.4 m shares at Rs 1960/share for an aggregate of  Rs 8900 crs to Prime Metals,an indirect subsidiary of UK’s Vodafone Group plc .Of course Vodafone did write off US $ 4.4 b recently & will not include it’s Indus Stake in any merger deal

Vodafone India Operations are now 100% owned by the UK Telecom Giant Vodafone

A Combined Entity with unlisted Vodafone India reverse merging into Idea Cellular would make it Numero Uno in the Telecom Provider Space in both,Revenues & Market Share.I am assuming a Market Cap in the range of Rs 175000 crs to Rs 200000 crs ,in excess of the current Rs 140000 crs of listed competitor Bharti Airtel

So what should be the Idea Cellular Price post merger?

Using Market Cap of Idea Cellular & Piramal’s Vodafone Stake sale Valuation as a basis,I would guess that  Vodafone would get at least Three shares of Idea Cellular for every One share of Vodafone.This would raise Idea Cellular Equity from current Rs 3601 crs to @ Rs 14400 crs with Vodafone owning a controlling 75% stake & Birla stake dropping to under 11%

Thus assuming a post merger Market Cap Range of Rs 175000 crs to Rs 200000 crs & a post merger Equity of Rs 14400 crs,the share Price Range of Idea Cellular should be Rs 120-Rs 140

A more liberal ratio of 4:1 would drop the post merger share price towards Rs 110 .A better ratio of 2:1 would  see Idea Cellular race past Rs 175

Do let me know if I’ve missed something or am way off mark.Market Share Price Surge indicates I’m on the right Valuation mindset on this

Major Risk as emphasised by both Idea Cellular & Vodafone

The Talks fail and there is no Merger.Idea Cellular would fall back to Rs 70.However there could be other suitors for it.

🙂 Alright so you guys missed this Bonanza two day long run ~ Well the adventurous among you who are die hard F & O Junkies especially, can now perhaps bet the Merger Talks will fail & Idea Cellular will tank back to Rs 70! ~ A Big Short maybe ~Any takers ! ? 🙂 ~ What an Idea ! ~ that will then be High Beta Unlisted Vodafone Volatility playing out through Listed Idea Cellular.Disruptive Thinking you say ! …well,we live in disruptive times 🙂

Disclaimer ~ Have Initiated an interest just today in Idea Cellular but may exit, even intra-day ( that’s a rarity for me), if price surges even more as Exchanges keep upping the Upper Circuit and risk to reward trade offs get skewed.This should also feature in my Training Sessions ,especially when I cover situations where to be prepared on Scenarios such as this and probable valuations and not get an opportunity is better than getting an opportunity and not knowing what to do!  

6 thoughts on “Voda Idea ! ~ Share Price Bonanza for Idea Cellular on Merger Talks with Vodafone

  1. Hello sir. As per this article 75% controlling stake will be held by Vodafone but I heard that Idea might get fresh capital infusion from promoters so that they do not lose the controlling stake to Voda… In that case what could be the possible valuation idea could get?

    1. Merger if announced should go through if spectrum limit criteria are fulfilled…as far as insider trading,spot data suggests that till Friday,January 27,2017 the price was under Rs 80 so no serious spikes…haven not seen F & O data…what however flags up is the denial by Idea in August 2016 that any such merger speculation is baseless & unfounded & then consequently Promoters picking up over 8 million shares through Pilani Investments in the qtr ended December 2016

      1. Yes, it raises serious corporate governance issues.
        Vodafone would not settle for less than controlling stake which could be minimum of 51% and not 75%.
        Birla would like to have at least 25% with them so that any special resolution can not be taken without their approval.
        How it will be done remains to be seen. From their present 42% holding, how they will retain 25% remains to be seen. May be they will have some convertible debenture subscription taking their holding to minimum 25% at a future date.
        These are just imaginations.
        Of course, markets were playing to it and people made killing.

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