Idea-Vodafone Merger Gets SEBI’s Conditional Approval

• Idea Cellular and Vodafone India merger gets ‘no-objection' letters from BSE and NSE
  
• SEBI probing transactions at Idea Cellular that are said to be in violation of securities law
  
• SEBI also said acquisition is exempt from making an open offer, as long as approved by the National Company Law Tribunal
  

The Securities and Exchange Board of India and stock exchanges have given a conditional approval to the $23-billion merger deal between Idea Cellular Ltd. and Vodafone India, which would be subject to the outcome of an ongoing probe by the regulator and other necessary approvals.

The multi-layered deal announced in March had recently got clearance from the fair trade regulator Competition Commission of India.

In their ‘no-objection' letters on the scheme of merger between Vodafone and Idea, BSE Ltd. and NSE Ltd. said that all the conditions put forth by the regulator need to be placed before the NCLT while seeking its approval. The ‘no-objection' as per SEBI's regulations will enable the companies to file the draft scheme with the National Company Law Tribunal.

In its detailed comments on the draft scheme, SEBI said it had received a complaint alleging that one of the promoters of Idea Cellular had purchased 0.23 percent stake of the company before the merger announcement, and that these transactions by the purchasers were in violation of securities laws.

"The said allegations are being examined by SEBI," the regulator said.

In this respect, the purchasers have submitted a voluntary undertaking not to dispose of these shares till further directions of SEBI and any liability eventually held to be valid against the purchasers shall be borne by them. Idea has also submitted a voluntary undertaking stating that it will comply with the directions of SEBI in respect of the ongoing examination. The third largest operator also said that it will bear any liability, if it is held to be valid.

SEBI has also received complaint about alleged violation of takeover norms as the shareholding of Idea would increase from about 21 percent to about 26 percent pursuant to the scheme.

SEBI said that the acquisition is “exempt from the obligation to make an open offer”, however the exemption will only be applicable after the approval from the National Company Law Tribunal. The regulator further said an ‘abridged prospectus' about the deal will need to contain a risk factor (at number 1) detailing the risks associated with the outcome of the examination by SEBI of the allegations in the complaint.

The company will need to ensure that the scheme clearly provides for voting by public shareholders and that the scheme of arrangement is acted upon only if the votes cast by the public shareholders in favour of the proposal are more than the number of votes cast against it.

The explanatory statement to shareholders need to disclose prominently that SEBI is examining the allegations with regard to transactions done by the purchasers in the shares of Idea before the announcement of the scheme.

"All the above facts shall be brought to the notice of NCLT," SEBI said.

It also asked the company to ensure that additional information, if any, submitted after filing the scheme with the stock exchanges, are displayed from the date of receipt of this letter on the website of the listed company. The regulator asked Idea to incorporate the observations of SEBI and exchanges in the petition to be filed before NCLT.

In March, Vodafone India and Idea Cellular announced the merger of their operations to create the country's largest mobile phone operator worth more than $23 billion with a 35 percent market share.

As part of the proposal, Vodafone India will initially hold 50 percent stake in the merged entity. Later, the British firm will own 45.1 percent of the combined entity while the Aditya Birla group, Idea's parent company, will hold 26 percent after paying Rs 3,874 crore for a 4.9 percent stake. The remaining 28.9 percent will be held by other shareholders.

BSE and NSE said they reserve rights to raise objections at any stage if the information submitted to them is found to be incomplete, incorrect, misleading, false or for any contravention of rules and regulations.

"The validity of this "observation letter" shall be six months from August 4, 2017, within which the scheme shall be submitted to the NCLT," the exchanges said in similar-worded letters.

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