The board of Idea Cellular approved the merger of Vodafone India Ltd and its wholly-owned arm Vodafone Mobile Services, making the new entiy the biggest telecom operator in India.
The combined entity emerges as the market leader in terms of wireless subscribers, taking on rivals such as Airtel and Reliance Jio.
The merger will further intensify the competition in India's telecom space.
Vodafone will hold 45 per cent of the combined entity while promoters of Idea will sold 26 per cent stake.
The shares of Idea Cellular soared over 14 per cent after the announcement.
Idea Cellular is already listed on BSE and NSE, while Vodafone India is expected to list on bourses in March 2017 and raise about $2-$3 billion.
Vodafone has 202.79 million users and Idea Cellular 187.68 million in India.
With 32.84 per cent, Bharti Airtel has the maximum market share, but the combined entity of Vodafone India and Idea will command 43 per cent, say analysts.
Vodafone India has 17 circles with 4G capability, covering 90 per cent of the company's total revenues and 94 per cent of mobile data revenues. Vodafone India has the largest voice and data traffic usage within the Vodafone Group and has more than 200 million customers.
Idea is trying to attract premium 4G customers, having launched services in seven circles so far. Idea's wireless broadband network is spread across 17 circles with a population of over 880 million, with 50 per cent of this population already covered.
Prior to the merger, it was speculated that the combined entity will generate a revenue share of around 40 per cent and a subscriber base of over 380 million, according to India Ratings and Research.