Merger and acquisition of hutch and Vodafone

History of HUTCH
• Operations : 1992
• Circles : 16+ license for 6 circles
• Revenues : $ 1282 million
• EBIT : $ 415 million
• Operating profit : $313 million
• Subscriber base : 29.2 million
• ARPU : Rs. 340.15
 Hutchinson essar(1992-2007)
• After LPG policy in 1991, from 1992
Hutchinson tie up with max-group
• Awarded license to provide
telecommunication service in India in 1994.
• Commercial service named ‘Hutchinson max ‘
should be launched in 1995
 Cont…
• After IPO 2004,hutch acquired six mobile
telecommunication operator providing service 13 in
India's 23 license areas.
• After acquisition of BPL mobile it become 16.
• In 2006, it announced the acquisition of a company
‘Essar Spacetel’ which that held license applications
for the seven remaining license areas.
• Initially essar was the major partner but later hutch
become a major partner

 
 Cont……
• In February 2007, Hutchison Telecom
announced that it had entered into a binding
agreement with a subsidiary of Vodafone
Group
• sell its 67% direct and indirect equity and loan
interests in Hutchison Essar Limited for a total
cash consideration.
 Growth of Hutchinson essar
• 1992: Hutchison Whampoa and Max Group establish Hutchison Max
• 2000: Acquisition of Delhi operations and entry into (now Kolkata) and Gujarat
markets through Essar acquisition
• 2001: Won auction for licenses to operate GSM services in Karnataka, Andhra
Pradesh and Chennai. 
• 2003: Acquired AirCel Dig link (ADIL — ESSAR Subsidiary) which operated in
Rajasthan, Uttar Pradesh East and Haryana telecom circles and rebranded it
'Hutch'.
• 2004: Launched in three additional telecom circles of India namely Punjab, Uttar
Pradesh (West) and West Bengal.
• 2005: Acquired BPL Mobile operations in 3 circles. This left BPL with operations
only in Mumbai, where it still operates under the brand 'Loop Mobile'.
• 2007: Vodafone acquires a 67% stake in Hutchison Essar for $11.1. billion. The
company is renamed Vodafone Essar. 'Hutch' is rebranded to 'Vodafone'.
• 2008: Vodafone acquires the licences in remaining 7 circles and has starts its
pending operations in Madhya Pradesh circle, as well as in Orissa, Assam, North
East and Bihar.
 History of Vodafone (Voice Data Fone)
• Founded : 1983 as Racal telecom, independent 1991
• Group : Vodafone plc
• Headquarters : Berkshire, UK
• Key People : Vittorio Colao, CEO and Sir John Bond, Chairman
• Industry : Mobile Telecommunications
• Presence : Equity interest in 25 countries and network partner in
42
• Strength : 230000 (employees)
• Revenue : £ 35478 million (14.1 % growth)
• Net income : £ 10047 million (10.1%growth)
• EPS : 7.51 pence dividend per share (11.1 % growth)
 Why Vodafone acquired hutch
The India advantage:
• privatization occurred in 1994,so competition increased and
India has emerged to be second largest telecom market.
• Indian Telecom sector was one of the fastest growing sector
between 2002-07 with a CAGR (Compounded annual growth
rate) of 22%.
• Vodafone needed to make an impact markets because urban
market already saturated in 2005.
• Penetration rate of mobiles in India was low and expected to
go up significantly in the coming year.
 Cont….
• Indian government had set up telecom
regulation that promoted infrastructure
building. That time just 40% of the country had
coverage with mobility and cellular and this was
expected to rise to about 50-60% in the coming
few years.
• It was expected that India would soon be
entering 3G services. Vodafone's experience in
the urban market was an added advantage and
it was felt that whenever these services would
be started, Vodafone would have competitive
advantage over its competitors.
Hutch advantage:
• key player in India.
• Most profitable telecom service provider, revenue growth
near 51%
• 16.4% market share and 23.3 million customers.
• Nationwide presence in India with the expansion drive having
undertaken or managed to get 22 out of 23 licenses areas or
circles.
• Hutch, a big player had a very high brand recall value in the
minds of existing and potential new customers mainly due to
its excellent advertisement campaigns.
• They use latest technology which meant that customer were
assured of good quality and so remained loyal to the brand.
 Why Hutchinson quit the market?
• Hutch known for building a business out of scratch and then
selling it in billions of dollars.
• Hutch found best time to quit india, when it had built his
brand image in indian telecom market, and to get a lucrative
deal for itself.
• Future expansion if any would have had to be only in the rural
areas, which would lead to falling average revenue per user
(ARPU) and consequently lower returns on its investments
• Hutch and essar have no cordial relation with each other.
• Often clashes occurred between essar and hutch and go to
courts for many times due to difference of opinion.
• These squabbles and lack of coordination also make
difficult to carry the operation smoothly.
• HTIL had suffered a loss to the tune of HK$768
million in 2005.
• HTIL also wanted to use the money earned through
this deal to fund its businesses in Europe, Vietnam
and Indonesia.
• So hutch quit the Indian market.
 How deal happened
• Hutch controlled 67% stake in hutch essar through
subsidiary company CGP
• Three major companies in the race of bidding:
Vodafone, reliance and essar.
• Bidding process continued for two months.
• Winning bid vodafone 11 billion
• Implied enterprise value: US$18.8bn (£9.6bn).
• Payment done to mauritius.(in month)
• Partnership agreement with Essar.
Detail of deal
 Timeline of Acquisition

• December first week: Reliance Communications plans bid for

Hutch-Essar.
• December third week: Vodafone joins the race, ropes in UBS as
advisor.
• January first week: Hutch, Ruias differ on right of first refusal;
Hindujas say they too will bid;
RCom gets $2 billion commitments from private
equity firms.
• January second week: Vodafone starts due diligence on Hutch-Essar,
followed by the Ruias; Hindujas place a
non-binding bid.
• February 9: Final day for submitting bids. Essar group, Reliance
Communications, Hindujas and Vodafone place their final
bids.
• February 10: Hindujas confirm to have partnered with Qatar
Telecom and Russia's Altimo to form a consortium.
• February 11: Vodafone wins the race with a $19.3 billion bid.
• Agreement: 11-Feb-2007
• Transaction sealed on 08-May-2007
• Operations start on 20-Sep-2007. Brand name changed from Hutch
to Vodafone on the same day.
The acquisition took place under Section 47(vii) of Income -Tax Act
1961.
Vodafone pays the entire deal amount in cash.
 Controversy
• The whole controversy in the case of
Vodafone is about the taxability of transfer of
share capital of the Indian entity. Generally,
the transfer of shares of a non-resident
company to another non-resident is not
subject to tax in India. As a result Vodafone
neither deducted the tax at source nor did it
pay after the acquisition.
Whats next???????
 33%

Get back the rest 33% stake from essar

company
Thank you