In March, Vodafone and Idea decided to join hands to take on intense competition. The parties engineered an ingenious financial deal to limit incremental damages. The contours of the deal ensured that there would be no change in the control in the combined entity.
However, recent reports suggest that the markets regulator is scanning through the documents and should it interpret that there is a change in control, it might trigger an open offer under the takeover code. We argue that although that’s a remote possibility, even if it happens, there is limited upside for investors.

Deal structure

As per the deal structure, Vodafone and Aditya Birla Group will hold 50 percent and 21.1 percent respectively in the combined entity. Later, Vodafone will transfer 4.9 percent of its stake at a pre-agreed price of Rs 109 per share to AB Group, bringing its stake down to 45.1 percent.
Additionally, the Birlas have a call option wherein they can increase stake by 9.5 percent to reach 35.5 percent at a pre-agreed price of Rs 130 per share over a period of three years post the closure of the deal.
The Birlas also have the option of picking up the stake from the market in the fourth year. If they do not exercise that option of raising their stake, then Vodafone has the option of reducing its stake to equalise ownership with that of AB Group.