Google searching for 5% in Vodafone Idea: Report

NEW DELHI: Google is in initial talks to buy a stake of about 5% in cash-strapped Vodafone Idea, India’s third-largest telecom operator, the Financial Times reported, citing people familiar with the matter. Vodafone Idea was formed in August 2017 by the merger of Vodafone India and Idea Cellular.

The telco, which has been posting losses since the merger, declined to comment on “this speculation”. Both UK’s Vodafone Group and Idea parent Aditya Birla Group declined to comment. Google didn’t respond to ET’s queries. Voda Idea shares closed 2.7% higher at ₹5.82 on the BSE Thursday, giving it a market value of ₹16,724 crore. For a 5% stake, Google will have to shell out $110 million (₹836.2 crore) based on that. Its Nasdaq-listed parent Alphabet has a market cap of $968.05 billion.

‘Alphabet Lost out to FB in Race for Jio Deal'
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The FT report said Google’s parent Alphabet was in talks to buy a stake in Reliance Industries Ltd’s Jio Platforms but lost out to Facebook in closing the deal. “Pursuing Vodafone Idea instead would potentially pit Google against Facebook and an increasingly dominant Jio but the company could also make multiple investments in India,” the report said.

Industry executives and analysts were sceptical about any Google-Vodafone Idea deal.

“Not sure if this (news report) is correct given the significant leverage VIL (Vodafone Idea Ltd) has and better opportunities are available to Google in Indian telecom space, with lesser leverage,” said Rajiv Sharma, head of research at SBICap Securities.

Apart from a net debt of Rs 1.03 lakh crore, the telco faces balance adjusted gross revenue (AGR) based dues of well over Rs 45,000 crore. It has also been lagging behind its rivals Reliance Jio Infocomm and Bharti Airtel in all major parameters such average revenue per user (ARPU) and data usage per customer. It has been losing subscriber and revenue market share rapidly since the merger. “But if this is correct, this move by Google would be more to do with Facebook entering the new commerce space, suggesting that Google doesn’t want to be left behind as it may have long-term implications around Google’s market share in digital ad market,” said Sharma.

Just over a month back, Facebook announced a $5.7 billion investment in Jio Platforms.

“What’s enigmatic is that why should a universal platform like Google make an investment in VIL for a petty 5% stake? Also, if Google has to counter Facebook-Jio deal, then why not Airtel?” said Sanjay Kapoor, former chief executive of Bharti Airtel for India and South Asia.

Airtel’s stock recently touched an all-time high on strong India results for the fiscal fourth quarter, backed by the highest ARPU in the industry. Its parent Bharti Telecom earlier this week raised $1.1 billion by selling a 2.75% stake in the telco to overseas and local investors such as Fidelity and Blackrock. But Airtel, with a market cap of `3.07 lakh crore, is far more expensive than Vodafone Idea, and so is Jio Platforms, noted analysts. The Facebook deal valued Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value, which rose to Rs 5.15 lakh crore in subsequent stake sales.

According to a global analyst, the money that Vodafone Idea would get from a 5% stake sale would not move the needle in terms of the telco’s liabilities, such as the AGR payment. “VIL doesn’t have tech presence. It is a wireless company and does not even have a retail presence,” said the analyst.