Should Vodafone target Airtel for M&A?

Vodafone Group plc of the U.K., which is likely to have $60 billion in cash after the $130 billion Verizon deal, is likely to look at telecom assets globally. Bharti Airtel, Vodafone’s rival in India, is one of the best options.

The Verizon-Vodafone deal is likely to be announced today.

The U.K. telecom giant has a 5 percent stake in Bharti Airtel. Singapore’s SingTel holds around 30 percent stake in India’s largest telecom operator.

Since Vodafone could be looking at buying telecom companies in Europe, Asia, Africa and Latin America, Bharti Airtel, which has presence in Africa and Asia, the Sunil Mittal-promoted Airtel could be a safe bet.

There are several benefits to Vodafone.

First, Vodafone will be able to avoid its present confusion over the 5 percent stake. Due to new telecom guidelines, Vodafone will be forced to sell its 5 percent stake in Airtel in the next few months.

At the same time, new M&A guidelines will also assist Vodafone to buy Airtel. If the combined entity’s market share is above the threshold level, they can reduce user base by eliminating less active mobile subscribers.

Second, India is the second largest telecom market in the world, after China. Vodafone is the second largest telecom operator here. It can become the number one telecom operator based on both revenue and subscriber base in India.

Bharti Airtel’s investment in Africa, which is yet to yield good return, may be a concern for Vodafone.

Vodafone is the second largest telecom operator in the world based on subscribers. It can add around 275 million users of Airtel, which ranks amongst the top 4 mobile service providers globally in terms of subscribers. Vodafone Group (including Verizon share) has around 453,633,000 users.

Vodafone-Airtel

Third, both Airtel and Vodafone follow similar marketing strategies – focus on mobile data driven by 3G and 2G, thrust on retail and enterprise users, rural expansion, etc. Vodafone Group’s data income rose 60 percent in June quarter 2013.

There are challenges as well. Airtel’s main promoters Sunil Mittal and family never announced their intention to exit from telecom venture. Also, SingTel is in the process of adding telecom assets and does not have any intention to exit India.

But there are other telecom assets in India. Reliance Jio Infocomm, the 4G venture of Reliance Industries (RIL) – promoted by Mukesh Ambani – is looking for a strategic investor. But 4G is yet to become a strong focus area for Vodafone. Till June, Vodafone’s 4G is available in 10 markets.

Besides spending on acquisitions, Vodafone will try to repair its £23 billion debt.

Meanwhile, Verizon Communications and Vodafone are expected to announce the $130 billion deal on Monday that ensures Vodafone’s exit from the U.S. market.

Baburajan K
[email protected]

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