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Flexibility, Innovation, and Sustainable Business pp 169–181 Cite as

A Study of Merger and Acquisition and Its Impact on Profitability Performance of Selected Merger (With Reference to Vodafone Idea Merger)

  • Suruchi Satsangi 12 &
  • Prem Das Saini 12  
  • First Online: 23 August 2022

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Part of the book series: Flexible Systems Management ((FLEXSYS))

Mergers and acquisitions are vital choices taken to boost an endeavor's blast through improving its assembling and promoting tasks. They are adopted to use and gain advantage power, expand the purchaser base, cut competition or enter into a brand new market or product section. When globalization of the Indian financial system was started in 1991, it was believed that it would suggest foreigners were not the handiest doing enterprise in India but additionally taking over Indian organizations. The objectives are to review the case of Vodafone-Idea related to M&As and analyzing its before- & after- performance of the company and its impact on the basis of profitability performance of the selected companies. The study is based on an analytical research. The data are taken from secondary sources from several websites. The time period of the study is two-year pre & two-year post of the selected companies. The base year is considered as zero. To analyze the profitability performance, ratios and t test has been used as a tool for further analysis of the paper.

  • Acquisition
  • Telecom sector
  • Profitability
  • Globalization

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Bedi, A. (2018). Post acquisition performance of indian telecom companies: An empirical study. Pacific Business Review International , 56–62.

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Jiang, J. (2019 ). An empirical study on M&A performance: evidence from horizontal mergers and acquisitions in the United States. Open Journal of Business and Management , 976–997.

Poddar, N. (2019). A study on mergers and acquisition in india and its impact on operating efficiency of indian acquiring company. Theoretical Economics Letters , 1040–1052.

Satyanarayana, D., Rao, D., & Naidu , D. (2017). The impact of reliance jio on Indian mobile industry a case study on mergers and acquisitions of idea—Vodafone and Airtel—Telenor. International Journal of Applied Research , 209–212.

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Department of Accountancy and Law, Faculty of Commerce, Dayalbagh Educational Institute, Agra, Uttar Pradesh, 282005, India

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Satsangi, S., Das Saini, P. (2022). A Study of Merger and Acquisition and Its Impact on Profitability Performance of Selected Merger (With Reference to Vodafone Idea Merger). In: Anbanandam, R., Rangnekar, S. (eds) Flexibility, Innovation, and Sustainable Business. Flexible Systems Management. Springer, Singapore.

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Please note you do not have access to teaching notes, vodafone-idea merger: emergence of a telecom giant amidst predatory price wars.

Publication date: 12 November 2018

Teaching notes

The Indian telecom market was witnessing a fierce price war, especially from an aggressive entry of a new player Reliance Jio Infocomm Limited (Jio) with a predatory pricing strategy. To react to the increasingly intense rivalry and maintain top positions, the second and third largest telecom operator like Vodafone India and Idea Cellular Limited (Idea) decided to merge together. The combined entity would become the largest wireless carrier in India. Was the merger the right competitive strategy for Vodafone India and Idea to fight against the wars? What synergies could the merger bring about? Given Vodafone India and Idea agreed to maintain their respective brands after the merger, would the two brands compete and cannibalize each other’s market share? As the Indian telecom industry was undergoing the liberalization of airwaves, how should the merged entity overcome potential regulatory hurdles? If this mega merger went through, what could be the impacts on the Indian telecom industry? If not, how should the companies move forward with the competition?

Research methodology

This case study research is based on published information of the focal companies and their operating environment. The case is written in such a way that can be depicted by related theoretical perspectives available from leading journals and books. There is no disguise of any actual persons or entities and no personal relationship between the authors and the organizations or individuals mentioned in the case.

Relevant courses and levels

The case study is intended for senior undergraduate and graduate level business school students in courses, including mergers and acquisitions, competitive strategies, industry analysis and marketing strategies.

Theoretical bases

The case is grounded on the industrial organization and resource-based theories, where the actions and reactions of competitors in the market are driven by their awareness, motivation and capability toward the competitive situation. Leveraging on a highly competitive and consolidated, unique Indian telecom market, the authors analyze competitive situations of the industry, evaluate potential synergistic benefits and market power from the merger of competitors, and give recommendations for the merged entity to overcome regulatory hurdles in the industry that is undergoing deregulation and to move forward with effective strategies to compete and strengthen market positions in such industry environment.

  • Mergers and acquisitions
  • Competitive dynamics
  • Competitive strategies
  • Industry consolidation
  • Industry deregulation
  • Predatory pricing


This work was supported by JSPS KAKENHI, Grant No. 18K01747.

Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision making. The authors may have disguised names; financial, and other recognizable information to protect confidentiality.

Kittilaksanawong, W. and Kandaswamy, S. (2018), "Vodafone-Idea merger: emergence of a telecom giant amidst predatory price wars", , Vol. 14 No. 6, pp. 609-634.

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

You do not currently have access to these teaching notes. Teaching notes are available for teaching faculty at subscribing institutions. Teaching notes accompany case studies with suggested learning objectives, classroom methods and potential assignment questions. They support dynamic classroom discussion to help develop student's analytical skills.

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research paper on idea vodafone merger

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research paper on idea vodafone merger

Mergers and Acquisitions: Case Study of Vodafone Idea Merger

By: Vaidehi Sharma

Introduction to mergers and acquisition  

‘Mergers and acquisitions’ is a technical term used to define the consolidation of two or more companies. When two companies are combined to form one unit, it is known as a merger, while an acquisition refers to the buying of one company by another one, which means that no new company is formed, only one company has been absorbed into another. Mergers and Acquisitions are an important component of strategic management, which comes under the head of corporate finance. The subject concerns buying, selling, dividing, and combining various companies. It is a  type of restructuring to have rapid growth and increase profitability. 

Mergers and acquisitions are part of the strategic working of any business or working group. It involves the joining of two businesses with the object to increase market share and profits and to have an influential impact on the industry. Mergers and Acquisitions are complicated processes that require preparation, analysis, and deliberation. There are a lot of parties who might be affected by a merger or an acquisition but before a deal is finalized, all parties need to be taken into consideration, their concerns should be addressed, and all possible hurdles that can be avoided must be avoided. 

The term ‘Merger’ has not been defined under the Companies Act, 2013 or  Income Tax Act, 1961 , but as a concept ‘merger’ is a combination of two or more entities into one; with the accumulation of their assets and liabilities, and coming together of the entities into one business. 

The other word for Merger is ‘Amalgamation’. Under The Income Tax Act, 1961  (ITA) ‘amalgamation’ is defined as the merger of one or more entities with another company, or the merger of two or more entities forming one company. It also mentions other conditions to be satisfied for an ‘Amalgamation’ to benefit from the beneficial tax treatment. 

For example -A company called and a company called B merge to form a new company called C . This is called a merger. 

The effect of the merger is that the assets and liabilities of both companies will now be shared and they will cease to exist as independent companies . 

Benefits of Mergers 

⮚ Profit and resource sharing – The resources of both companies are pooled together which increases the profit outcome.

⮚ Access to New Markets – Entering into new markets can be challenging for any company even for established companies. While setting up a subsidiary  or branch is always an option, a merger or acquisition can save companies a  significant amount of time, effort, and money compared to starting from  scratch  

⮚ More Economic Strength and Competitive Edge – mergers and acquisitions mean financial strength for both companies. It can help them to become more powerful in the market, attract more customers and create more resources. 

⮚ Powerful Human Resource -The biggest asset any company can hold is its employees. A skilled and effective stall generates a lot of profit for the company. Therefore in mergers and acquisitions, the human resources of both companies are pooled together. 

⮚ Better infrastructure and Fixed Capital -In mergers and acquisitions the resources of both companies are shared which means access to better infrastructure for the poor company. Big machines and other resources can also be used up for better production. 

Mergers and acquisitions in the telecom industry in India 

Introduction  .

India is currently ranked as the world’s second-largest telecommunications market with more than 1.20 billion subscribers and has shown strong growth in the past one and a half decades. 

The Indian telecom industry is growing at a rapid pace. In 2020-2021 the telecom industry contributed 6% to India’s Gross Domestic Product (GDP). The telecom  sector is set to grow at a Compound Annual Growth Rate (CAGR) of 9.4% from  

2020 to 2025. However, with a CAGR of 15.9% throughout the forecast period, the smartphone industry in India will have the fastest growth. By 2025, India’s digital economy will be worth $ 1 trillion. 

The industry has increased primarily due to favorable regulatory conditions, low prices, increased accessibility, and the introduction of Mobile Number Portability  (MNP), expanding 3G and 4G coverage, and changing subscriber consumption patterns. The deregulation of Foreign Direct Investment (FDI) rules has made the telecom sector one of the fastest-growing sectors in the country and a huge means of employment opportunity generator in the country too.

The subsectors of the telecommunication sector include infrastructure, equipment,  Mobile Virtual Network Operators (MNVO), white space spectrum, 5G, telephone service providers, and broadband. 

It is predicted that 5G technology will boost the Indian economy by $ 450 Bn between 2023 and 2040. According to the Global System for Mobile  Communications (GSMA), there is an excellent opportunity for investment in this sector as India will have almost one billion installed smartphones by 2025 and 920  million unique mobile customers, including 88 million 5G connections. 

Importance of the telecom industry  

The importance of the telecommunication industry is highlighted by the fact that it enables global communication. The relevance of this industry has increased significantly after the pandemic. Services offered by this industry are more frequently used since it allows for a continued virtual connection. The smartphone market will continue to increase as more people are expected to purchase them in the coming years. Given that government reforms have eliminated ambiguity and risks and established a stable investment environment, India’s telecom sector is projected to receive investments totaling $ 25.2 Bn over the next two years. 

Mergers and acquisitions in the telecom industry  

The recent trend of mergers and acquisitions can be widely seen in the telecom sector too. This recent trend in the world of the telecommunications market has been caused by the ongoing regulatory liberalization and privatization of the industry.  These changes have brought about fierce competition and ensuing decreases in profit in both the domestic and international telecommunications service markets. 

Mergers and acquisitions in the telecom sector are considered to be horizontal mergers because both companies deal in the same line of business. In the majority of developed and developing countries, mergers and acquisitions in the telecommunications sector have increased which also resulted in the creation of jobs. 

The legal Framework of Mergers and Acquisitions in the telecom sector  

  • ⮚ National Telecom Policy formed in 2012 hasimplifiedde M&A in Telecom  Service Sect, ensuring adequate competition and allowing  100% FDI.
  • ⮚ The merger in the case of licenses shall be done for the respective service category. Access to service license allows the provision of internet service and so the merger of ISP license with services license shall also be  
  • permitted. 
  • ⮚ In a service area, the market share of the merged entity should not be more than 50%. If it is more, it has to reduce it below 50% in an annum. 
  • ⮚ The total spectrum held by the merged entity should not be more than 50%  in a service area. If it is excess, it has to be surrendered within an annum. 
  • ⮚ The corporation which acquires will have to pay the difference between the market price determined in the auction & the administrative price if an acquired company has got spectrum after paying the administrative price. 
  • ⮚ If due to a merger or transfer of license in any service area business,  corporation or entity becomes an important market power, then TRAI’s  Telecommunication Act of the year 2002 will come into place. 

Case study – Merger of Vodafone and Idea 

History of both the companies  , history of the merger  .

In March 2017, it was announced that Idea Cellular and Vodafone India would merge. The merger got approval from the Department of Telecommunications in July 2018. On 30 August 2018, National Company Law Tribunal gave the final nod to the Vodafone-Idea merger. It was completed on 31 August 2018, and the new entity was named Vodafone Idea Limited. Under the terms of the deal, the  

Vodafone Group held a 45.2% stake in the combined entity, the Aditya Birla  Group held 26% and the remaining shares were to be held by the public. 

Reasons for Merger of Vodafone and Idea   

Dominance over the market by JIO- The main reason for the merger of Vodafone and the idea was the dominance of the Jio company. The companies saw a major downfall as Jio announced free internet services for the first 6 months. As a result price war began between companies. the companies began to see losses, and as a result, a merger between Vodafone and Idea happened. 

Key takeaways  

  • ⮚ Under the plan submitted to Indian regulators, Vodafone will initially hold a  50 0% stake in the combined entity, while the Aditya Birla Group and public shareholders will hold 21.1% and 28.9%, respectively. Vodafone will then divest a 4.9% stake to the Aditya Birla Group, which would increase the latter’s stake from 21.1% to 26%, thus crossing the threshold for an open offer. 
  • ⮚ Vodafone and Idea had individual spectrum holdings of 411 MHz and 316  MHz respectively. The amalgamation of the companies would give, it was expected, the merged company a hold of 728 Mhz increasing the chances of the merged company to rank number one or two in India. 
  • ⮚ The merger ratio was 1:1. This ratio was based on the price of Idea at 72.5  per unit. Implied enterprise value for Idea and Vodafone was INR 72  thousand crores and INR 82 thousand and 8 hundred crores respectively.  The agreement had a break fee of Rs 3,300 crore payable upon certain conditions. 
  • ⮚ Aditya Birla also has the right to acquire up to 9.5% additional shareholding from Vodafone Group throughout three years post-closure of the deal for an agreed price of INR 130 per share. But these rights by Aditya Group will be exercised based on the growth achieved and the market price of the combined entity .
  • ⮚ Idea and Vodafone will have joint control over the appointment of CEO and  COO, the exclusive rights to appoint a CFO is with Vodafone. So Vodafone is not just a major shareholder but also has more financial rights. 
  • ⮚ If at the end of 3 years, Aditya Birla Group fails to purchase any stakeout of the additional stake of 9.5%, then they will be given the last opportunity to purchase the stake at the prevailing market price for share equalization. 
  • ⮚ Vodafone contributed net debt of Rs 55,200 crore to the merged entity,  whereas Idea contributed Rs. 52,700 crore. Vodafone contributed net debt of Rs. 2,500 crore more than Idea . 
  • ⮚ In September 2020, Vodafone – Idea rebranded itself. The company used the initials to rebrand itself as ‘Vi’. The rebranding took place after almost two years of the merger, however, it shows the spirit of integration. 
  • ⮚ In the financial year 2022, Vodafone Idea Limited earned revenue of 386.5  billion Indian rupees.

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Vodafone Case Study


Vodafone Case study describes the situation when  Idea Cellular and Vodafone after the entrance of JIO. So, here is the Vodafone case study which describes the position of Vodafone and Idea Cellular before and post-merger, reasons for the merger, how did merger take place and critical analyses of the merger.

About Vodafone 

Vodafone company came from the UK based Vodafone Group plc. It is a multinational service provider of telecommunications in 22 different countries as of 20th November 2020. And, in India Vodafone has its headquarter in Mumbai, Maharashtra. Vodafone is the third largest telecommunication provider in the country. Vodafone

research paper on idea vodafone merger

At the beginning of the year, 1992 Vodafone started its company in India from Bombay(now Mumbai). After the entry of JIO in the year 2016. Afterwards, our Vodafone case study begins, Vodafone and Idea announced their merger in March 2017. And as of 31st August 2018, it is known as Vodafone Idea Limited.

Vodafone Idea Merger Case Study

Vodafone case study explains the reason and the situation of the merger of Vodafone and Idea. This merger was first announced in March 2017. Afterwards, in July 2018, the department of telecommunication gave the approval for the merger. Finally, on 31st Aug 2018, the merger was completed and it is announced as Vodafone Idea Limited.

research paper on idea vodafone merger

And this merger was the largest telecom merger in India. As per this merger, Vodafone holds a 45.2% stake, Aditya Birla Group holds 26% and the remaining stakes were held public. So, to understand the Vodafone case study, let’s understand the reasons for the Vodafone Idea merger case study.

Reasons For Vodafone Idea Merger

So, while understanding the Vodafone case study lets us understand the reason for the Vodafone Idea merger. 

  • The main reason for the Vodafone-Idea merger is to Handel the rising dominance of Reliance Jio in the Telecom industry. As Jio announced to provide free services in the first 6 months. As a result, it started to capture the maximum part of the market.
  • Secondly, the free services from the Jio started the price war between the companies in the telecom sector( as it in an oligopoly market structure ).
  •  As a result in case of a price war merger brings confidence in companies with synergy benefits. 
  • At last, the combined entity of Vodafone and Idea was expected to hold a strong position in the industry . Such as in some circles it became the largest cellular service provider and in some circle, it was the second-largest after Bharti Airtel. So, a joined company can focus on being the service provider in pan India.

So, these were the reasons in Vodafone case study for the merger of Vodafone and Idea.

Vodafone Idea Integration

According to the past in the telecom industry, major telephone operators believes the merger is a strong tool to be in the lead position. As Airtel acquires the Telenor, it acquires the scope and business from other small telecommunication companies like Augere Wireless, Videcon, Tikona(4G Spectrum) etc. 

Also, Reliance Communication (R Com) merged with Aircel and acquire MTC. Plus the Tata Telecom also started the process of merging with R Com. As a result in a period of seven months telephone operators numbers went down to seven from twelve.

However, the announcement of the merger creates a negative image in the public, when the Vodafone and Idea merger was announced the Idea prices started to drop . And the share price of Idea declines from Rs. 97.70 on 20th March 2017 to Rs. 81.81 on 6th Sep 2017.

But the merger was important it gave support to the two companies, which were struggling to survive in the industry. Combined resources will help to compete with only the two biggest brands(Jio and Airtel).

So, these were the challenges of Vodafone and Idea merger in case of Vodafone case study.

Critical Analysis Of Vodafone Case

The merger of Vodafone and Idea in Vodafone case study gave higher stakes to the Idea promoters as compared to Vodafone. So, in long run, both companies can gain access to equal shares in the future. 

Here are the few takeaways from the Vodafone Idea merger in Vodafone case study: 

  • The very first thing was the acquisition of 4.9 per cent shares of Vodafone by Aditya Birla . This would amount to a total of Rs. 3874 crore wherein each share is worth Rs. 108 . This would be helpful in increasing the shareholding capacity of Idea to 26 per cent .
  • While in the case of Vodafone case study, Vodafone holds 45.1 per cent of the shares in the merger, Idea would be allowed to buy another 9.6 per cent but at a cost of Rs. 130 per share in the period spread over the next four years. However, if Idea is unable to come up equal to the shareholding percentage of Vodafone, it can go forward and buy the number of shares required further but at the price prevailing in the market.
  • And, the chairperson of the newly formed enterprise would be Kumar Mangalam Birla . On the other hand, Vodafone had appointed the Chief financial officer . As, after that new CEO was named under both the companies.
  • Lastly, the promotors of both entities have the right to nominate three members for the board . Also, there are 12 members out of which 6 are independent on the board in the Vodafone case study of Vodafone and Idea merger. 

Idea Positioning Before Merger

In Vodafone case study of Vodafone and Idea merger, now lets understand the Idea Cellular Limited is an Aditya Birla Group company. Founded in 1995, the company was incorporated as Birla Communications Limited and had a license of GSM-based services in Gujarat and Maharashtra Circle. In the following years, the organization started to expand its business with Tata Group, Birla and AT&T group of the US in joint venture form. 

In August 2015, Idea announced the rollout of its 4G services. It was now competing with Airtel and Vodafone – in a non-monopolistic market. The company relaunched its “What an Idea” campaign taking 4G to the rural areas and empowering people through the usage of 4G services.

research paper on idea vodafone merger

But in the year 2016 sudden announcement from Mukesh Ambani about Reliance Jio disrupted the Indian telecom sector. Below pie chart shows the market share of different telecom players before the entry of Jio.

As the Indian market is very sensitive towards price and Jio used it to make most of the profits. So, Jio started to make its all services free for the first six months. Afterwards, they made the services of voice calls, data extremely cheap. As a result, JIO captured a significant share of the telecom industry. Here is the pie chart of the post-Jio market share of various telecom players.

research paper on idea vodafone merger

Vodafone Idea Merger

This transaction required various approvals from government authorities including SEBI, dept. of Telecom and Reserve Bank of India among others. The Department of Telecommunications (DoT) has given the green signal for the merger of Vodafone India and Idea in our Vodafone case study, the largest Merger and Acquisition agreement in the sector, which has displaced Bharti Airtel from top position after over 15 years. The approval conditions, which were given over a year after the agreement, were announced in March 2017 which included an advance payment of Rs 7,268 crore. 

Idea Contributon

Promoters Aditya Birla Group infused Rs 3,250 crore in Idea Cellular , which separately raised Rs 3,000 crore ahead of a planned merger with Vodafone India. Following the equity infusion by Idea’s promoters, their stake in India’s third-largest telecom operator rose to 47.2% from 42.4% now. Idea contributed its assets which included standalone towers with 15,400 tenancies and a stake in Indus towers Ltd of 11.5%. 

research paper on idea vodafone merger

The entry of Reliance Jio Infocomm Ltd in September 2016, with free services for almost seven months and cheap tariffs, had eroded margins and impacted the revenue of rivals. The contribution of Vodafone will be Vodafone India along with standalone towers with 15,400 tenancies without including an 11.5% stake in Indus Towers. According to the agreement between Idea and Vodafone.

Vodafone will contribute more amount of net debt, about Rs 2,480 crore than Idea at the completion of the merger. Post-termination of both companies, the combined entity will be a joint venture between Vodafone and Idea in the Vodafone case study. Which will account for the under the equity method, controlled by both Aditya Birla Group and Vodafone.

Idea promoters hold the rights to acquire a 9.5% additional stake from Vodafone under the agreed deal to equalize shareholdings over time as per the following proposition

Vodafone: 45.1% – 9.5% = 35.6%

Idea: 26% + 9.5% = 35.6%

research paper on idea vodafone merger

Impact of Merger on Telecom Industry

There are also several other implications that this merger of Vodafone case study will bring forth on the telecom industry.

1. Firstly, there can be initiatives based on the renewal of price discipline for the disruptive entry by Jio has caused some serious misbalance

2. Secondly, the poor financial health of the telecom sector can be observed. And through such mergers, there will be an infusion of health and life. Since India is the fastest-growing market in terms of subscriber base .

3. Through the merger, Vodafone and Idea will overcome their debts and a large sum of credit will be infused into the system

4. The deal has also saved both the telecom companies from selling off their business . As was being planned by them initially and this would directly impact the quality of services being provided by different players in the industry

The merger in the Vodafone case study will surely boost the pace of the telecom sector. It has also been found that the savings, synergies and also the spectrum will have a substantial impact on the escalating growth. 

There will be a saving of over 60 per cent of the cost of the operation and this will aid in improving the quality and performance of the service through investments from the saved money.

Enhancement in network infrastructure will be observed while the operational efficiencies have a chance to reach excellence. Moreover, the revenue market share is expected to rise for all the locations and the spectrum of the entity would exceed the initial caps.

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