MUMBAI (Reuters) - Britain's Vodafone Group <VOD.L> will merge its Indian subsidiary with local rival Idea Cellular <IDEA.NS> within two years, Idea said on Monday, creating a new market leader better able to contest a brutal new price war.
Vodafone will own 45.1 percent of the merged entity, after it transfers about 4.9 percent to promoters of Idea and/or their affiliates for 38.74 billion rupees ($592.15 million) in cash, Idea said.
The combined Vodafone-Idea group would India's largest telecom operation with almost 400 million customers, or 35 percent market share.
The merger comes after India's mobile industry was thrown into turmoil with the launch last year of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman, Mukesh Ambani, as part of his Reliance Industries <RELI.NS> conglomerate.
Jio has made an impact with free voice calls and cut-price data services, forcing India's three biggest operators - Bharti Airtel <BRTI.NS>, Vodafone and Idea - to slash prices and accept lower profits.
Idea said the companies expected cost and capex synergies of about $10 billion in net present value after integration costs and spectrum payments.
Idea will have the sole right to appoint the chairman, while Vodafone will appoint the chief financial officer, it said.
The appointment of a chief executive officer and a chief operating officer would require the approval of both companies, which would get the right to nominate three board members each.
Vodafone, the world's second-largest cellphone operator, has endured a tumultuous ride since it entered India in 2007, with fierce competition and a high-profile tax battle making a business contributing more than 10 percent of its revenues and profits its most unpredictable by far.
Shares in Idea rose as much as 14.25 percent immediately after the merger news but gave up gains to be trading up 3.2 percent at 0432 GMT.
($1 = 65.4225 Indian rupees)
(Reporting by Rafael Nam; Additional reporting by Swati Bhat; Editing by Stephen Coates)