Vodafone Idea Limited PDF

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Acquisition and merger of vodafone idea...

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CHANGE & INTERVENTION STRATEGIES Prof Mahima Thakur

VODAFONE IDEA MERGER

Submitted By: GROUP

5 members

S002 S003

CONTENTS 1) What is merger 2) Introduction to Companies 3) Merger Details 4) VIL NEW entity – WHY MERGER ?

Akanksha Ahuja

S006

Ambrish Nagar

S008

Amit Kumar

S010

Anuj Kumar (S/oAshok Kumar)

S015

Anuj kumar Jha

S016

Anupam Singh

S017

5) Effects of merger 6) Challenges Post Merger 7) NEWS ABOUT MERGER 8) VIL FACTS – CURRENT STATE 9) Inside Story at IBM 10) Key Takeaways

1. Introduction In November, when British telecom major Vodafone Group slashed the value of its local business by five billion euros, for once it seemed that the India’s second largest telecom operator is hanging up its boots in the battle of the might, triggered by Mukesh Ambani led Reliance Jio. Vodafone’s announcement to merge with Idea Cellular changed what the industry was thinking about the company. The merger will make the combined entity, the largest telecom company in the country. This would leave three big telecom players – Airtel, Vodafone-Idea and Reliance Jio, apart from the state owned BSNL. The merged entity is estimated to hold a revenue market-share of 42%, overtaking Airtel,

which has 31.4% currently in the telecom sector. Emerging talks between Vodafone India and Idea Cellular indicate that Aditya Birla Group chairman Kumar Mangalam Birla could become Chairman of the merged entity. The merged entity is likely to have 12 directors on its board, three on each side and six independent ones.

2. Why merge? Consolidation was inevitable, especially after 2008, when six new licenses were given to new players. The number of telecom operators grew to 12. Although, after the 2G scam surfaced a couple of years later, some of the small players pulled out of the telecom market, while others were reduced to marginal players, operating in a selected few cities. The entry of Reliance JIO sparked the inevitable. Had it not been for Reliance Jio’s entry, the merger would have been delayed. Analysts wrote that “Jio’s disruptive free distribution of SIM cards” served as a catalyst to the proposed merger. Jio’s free service offerings have been extended to 31st March due to which many of the big players including Vodafone and Airtel have lost a vast market share. Even discounts offered by these giants are not adequate enough to stand tall against JIO. One can’t simply compete with free offerings.

3. Advantages of the merger A potential merger of Vodafone India and Idea would make the entity the biggest spectrum holder in India and would knock off Reliance Jio from the top slot on the overall network capacity market share metric Credit Suisse believes.

The merger will complement the circle presence of both the companies – Vodafone India has strong presence in urban localities while Idea has it in rural areas. It will also improve the competitiveness of the resultant company compared to other telecom leaders in around 60 percent of circles. Further, the spectrum of Vodafone India in seven circles and that of Idea in two, which are expiring in 2021, are not in common circles, resulting in potential spectrum Capex synergies. “This could unlock $9 billion in potential synergies and offer an elegant route for Vodafone to deconsolidating India, thereby helping focus attention back onto a rebounding European equity story,” said New York-headquartered financial services firm JP Morgan. The combined entities’ revenue will be around Rs. 77,500-80,000 crore and EBIDTA margins of around 28 per cent,” India Ratings said in a statement. The merged entity, the brokerage said, would command a 26% spectrum market share and relegate Bharti Airtel to second place on this score. At present, Sunil Mittal-led Bharti Airtel leads the industry in terms of spectrum holding with a 21% market share, with Jio at second spot with 17%. India Ratings estimated that the ROCE will also improve for the industry by around 300 basis points over 2016 to 2018 while the total capital deployed will increase 90 per cent by 2018 over 2015.

4. Key Challenges The key challenge will be operational and management control of the merged entity, along with the outstanding tax matter of Vodafone. According to Indian regulations, a telecom carrier cannot have more than 50% revenue share in any circle. According to Credit Suisse, the proposed merger has a 60 percent chance of going through because such disposals could make it more difficult for Idea and Vodafone to take advantage of their combined circle scale because India is divided into 22 geographic circles, meaning a telecom carrier needs critical mass in each to maximize pricing power within that circle. The two operators have airwaves in five such circles that exceed the regulatory limit of 50 percent per band and 25 percent across all bands. Carriers need more spectrum to improve service quality and extend their coverage. Prior to Jio’s entry, Bharti Airtel, Vodafone and Idea were able to increase revenue and profit, even as they were dependent on heavy borrowings to pay for spectrum and infrastructure. Jio, which stormed India’s crowded cellphone market with free voice calls for life, has now forced rivals to cut prices and expand their mobile broadband networks.

5. Challenges post-Merger Vodafone-Idea is trying to cope with the merger’s biggest challenge — managing employee morale at a time of huge job losses.

Success of this merger and integration depends on people. Few Points that need more focus for a smooth Merger are 

Cultural differences, due to the way they are structured…, and the need to be very careful,”

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Communication with employees is a two-way process, with “equal feedback”, goals we reset integrate as quickly as possible and protect market share.

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Employees would feel closer to their parent company or the team they worked with Employees continue to have their loyalties aligned to their parent firms.

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Acceptance of new structure and roles assigned with new bosses. This also sends contradictory signals to vendors.

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New company has to “celebrate” the differences and should choose best practices from both companies.

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Differences in the appraisal process, setting up of performance parameters. Changing organization Structure could be confusing

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Salary levels of both companies were also different, and so were spending habits, with the multinational being more “expansive” and Idea “conservative”, which is leading to “frictions within teams”

6. Mixed Opinions post-Merger After 7 months of Merger Economic times had done a survey to know what the opinion of employees and management post-merger was and if they were happy with this Merger. Mixed kind of opinions emerged from this survey that have been shared below 6.1 Employee Perspective Managing employee morale at a time of huge job losses. Vodafone-Idea let go of 4,000-5,000 employees in the lead up to the merger in August 2018. “The morale is quite low… The message we are getting is ‘everyone’s job is under threat’, which is harming performance,” said a senior employee of Vodafone Idea, When ET spoke to them “Every day we come to office to hear about more pink slips…,” said a mid-level employee, who has managed to retain his job post-merger. Some employees claim the new structure is leading to so-called ‘demotions’ and alleged that it could be a move to shed more jobs.

6.2 Management Perspective – Higher Management didn’t comment on the current employee strength and layoffs but said the people integration was progressing smoothly.

CEO said that Vodafone Idea has already realised 60% of the targeted synergies in seven months, something which typically “would have taken four years…10 circles of full integration of networks wouldn’t have been possible if engineers were all not working together.” The CEO also told ET that communication with employees is a two way process, with “equal feedback”, and two very clear goals were set: integrate as quickly as possible and protect market share.

7. Benefit to customers 

Customer as a king in market due to impact on tariff prices.

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Chances of better and faster network is more.

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Network integration does not require customer to port their number.

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Also, both the companies start working on better coverage of 4G and 5G which ultimately grew the future expectation of customer.

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Strictly adhering to quality of service (QoS) norms nationally has even set up war rooms to track network performance and minimize customer inconvenience.

8. VF Idea Merger from IBM Perspective ( By Akanksha Ahuja S006) IBM had a decade long engagement with Vodafone and Idea. Being a vendor to both the firms separately, IBM got the advantage to be the IT supplier of the merged organization. IBM was chosen as the supplier to fulfill the overall objective of reducing the IT Costs for Vodafone Idea.

Behaviour of Vodafone : Vodafone has been an aggressive organization with key focus on business processes like Vendor management, Cost management , IT management etc. The hierarchical structure is followed strictly at all levels. Vodafone has been the final decision making authority in all its engagements with Vendors. The engagement model between IBM and Vodafone was fixed price hence the number of IBM employees deployed were large. Behavior of Idea : As compared to Vodafone, Idea has a laid back attitude in terms of following approval processes. It gave full liberty to IBM to take decision on implementing efficient IT processes and innovative solutions. The engagement model between IBM and Idea was staffing based hence the number of IBM employees deployed were appropriate. The Merger Time An American Merger and Acquisition firm was hired to take interviews of all the employees of Vodafone and Idea in order to prepare the new organization structure and plan layoffs. The process went on for 4 months and finally a 60/40 split of leadership was done, 60% leadership from VF and 40% from Idea. The Chief Technology Officer was appointed from Vodafone while Chief Information Officer was appointed from Idea. Challenges for IBM after the merger 1. Immediately after the merger, all projects and change requests in IBM pipeline were put on hold, because neither VF nor Idea wanted to take the ownership of them. 2. Both the firms focused on their own circles for revenue and worked in silos. 3. Streamlining Financial Reporting was a major challenge as Vodafone followed D – 3 day reporting while Idea followed D – 1 day reporting. 4. Since there were 3 times more IBMers deployed for Vodafone project than Idea, around 35% of them were released from the new merged project. 5. IBM had to pay several penalties on the SLAs that were under Idea before , as after the merger the approval hierarchy of Vodafone had to be followed which lead to delay. Feedback from Idea Employees 1. As per sources, in the new Organization Structure , a Business Analyst from Idea was put under a Vodafone employee handling IT Operations. This led to decline in his morale and after 6 months , the Idea employee put his resignation. There were many such stories of employees quitting the merged organization due to these inappropriate reporting structures. 2. Vodafone leadership always put its applications on priority to be implemented by the Vendors. Idea applications were taken up after Vodafone applications. 3. Though Idea was very good in providing IT solutions, but Vodafone believed they are the best in the business, hence final decision to adopt IT solutions proposed by Idea were taken by Vodafone. 4. Though Idea leaders were given senior positions in the merged Organization structure , but the power to take decisions was with Vodafone.

Human Process Intervention is one of the most critical components to be considered in any merger. Vodafone is overpowering Idea in the merged structure. On the surface level , the merger looks successful, but at the ground level, Idea is still trying to adopt to the culture followed by Vodafone.

9. Conclusion Credit Suisse said the Vodafone-Idea merger would be good for the industry and combining entities in the long term, but “coming years would remain challenging from the perspective of pricing and capital expenditure pressures“, especially as Jio is expected to slug it out for a 30-plus% market share to justify returns on its large investment. The London-based Vodafone Group surprised all by confirming speculation on the merger, saying it is indeed in talks with the Aditya Birla Group entity for a merger, but added nothing has been finalized as yet. Media reports have said that the two parties, which are the second and the third biggest telecom companies at present, are looking at an equal ownership in the merged entity. The proposed merger between Vodafone and Idea Cellular seems to be a positive move for the telecom sector and will push the combined entity’s margins up by around 3 percentage points on cost synergies. References http://www.bloombergquint.com/markets/2017/02/10/vodafone-idea-merger-perfect-match-for-bhartiairtel-agree-analysts http://economictimes.indiatimes.com/news/company/corporate-trends/vodafone-idea-combine-tooutshine-airtel-jio-credit-suisse/articleshow/57094489.cms http://economictimes.indiatimes.com/news/company/corporate-trends/vodafone-idea-cellular-mergerto-boost-margin-credit-positive-report/articleshow/57041864.cms http://www.business-standard.com/article/companies/vodafone-idea-merger-plans-leave-tata-tele-in-afix-117020601002_1.html http://www.livemint.com/Money/ZL7jov9xOFIyVndDXEMN7K/A-Vodafone-and-Idea-merger-is-nopanacea-for-the-telecom-sec.html...