Vodaphone shares gained around 2.9% to change hands at 199.1 pence each shortly after the opening bell in London but have lost more than 12.5% in the past three months.
"Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone's 42% stake in Indus Towers) and Idea," the company said in a statement. "Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India."
"There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction," the statement added.
Idea Celluar shares had gained as much as 28.5% in Bombay trading Monday on speculation of a potential tie-up, rising the most more than a year to change hands at 100 Indian rupee each, valuing , India's third-largest mobile player at around 360 billion Indian rupee ($5.3 billion)
Vodafone's operations in India have taken a toll on the company's bottom line, with the group reporting a first half loss of €5 billion ($5.9 billion) on a similar-sized writedown linked to a fierce price war in the market led by Reliance Jio Infocomm, a cut-price operator with the financial backing of billionaire Mukesh Ambani.