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Deal conclusion, cost synergies challenge for Idea-Voda: Experts

The Idea-Vodafone merger will create a behemoth with unmatched spectrum footprint and market leadership but long timelines on deal conclusion and cost synergies in a hyper-competitive market are likely to pose challenges, say experts.

"In our view, upside is restricted by hyper competitive scenario, with Jio expected to remain aggressive in race to gain revenue market share; long-dated cost synergies and lack of debt reduction in medium term," Emkay said in a latest report.

The progress on regulatory approvals would be closely watched as both the entities have a number of pending litigations, it added.

The combined entity is estimated to have annual cost synergies (capex and opex) of Rs 14,000 crore from the fourth year of merger, with 60 per cent this as opex savings. The largest component of opex synergy would be network followed by IT spends, Emkay noted.

"Initial years would have cost towards integration, which is estimated at Rs 133 billion (Rs 13,300 crore)," it said.

The targeted synergies are achievable and the combine is "unrivalled" in terms of revenue market share and spectrum, JP Morgan has said but flagged challenges such as execution of complex mergers and the back-loaded synergies. It further said that "execution of such a complex merger is rarely perfect, revenue market share gains for the combine likely to track below expectations especially over the next 12-24 months given merger complexities and distractions".
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