A Project on Merger and Acquisition of Vodafone and Hutch

What is Merger
In business or economies a merger is a combination of two companies into one
larger company.
Such actions are commonly voluntary and involve stock swap or cash payment to
the target.
What is acquisition
An acquisition also known as takeover , is the buying of one company(the target)
by another
An acquisition may be friendly or hostile.

Types of Merger and Acquisition

Horizontal Merger-Two companies that are in direct competition and share the
same product lines and markets.
Vertical Merger-A customer and company or a supplier and company.For instancea cone supplier merging with an ice-cream maker.
Market-extension merger-Two companies that sell the same products in different
markets.

Motives behind a Merger or Acquisitions

Synergies- This refers to the fact that the combined compnaycan often reduce its
fixed costs by removing duplicate departments or operations.
Increased Revenue/Increased Market Share-This assumes buyer will be absorbing
a major competitor and then increase its market power.
Cross Selling-A manufacturer can acquire and sell complementary products.
Economies of Scale-Ex-Managerial Economies such as increased opportunity of
managerial specialization

Taxes-A profitable company can buy a loss maker to use the targets loss as their
advantage by reducing the tax and liability.
Geographical or other diversification-This is designed to smooth the earnings
results of the company which over the long term will smothen the stock price of
the company giving conservative investors more confidence in investing in the
company.
Resource Transfer-Resources are unevenly distributed across firms and the
interaction of target and acquiring firm resources can create value either through
overcoming information asymmetry or by combined scared resources.
Growth of Hutchison Essar
1992: Hutchison whampoa and Max group established Max Group.
2000: Acquisition of Delhi operation entered Kolkata and Gujarat Market
through ESSAR Acquisition.
2001: Won auction for incense to operates GSM Service In Karnataka,
Andhra Pradesh and Chennai.
2003: Acquired AirCel Digilink (ADIL- Essar Subsidiary) Which operates
in Rajasthan, Uttar Pradesh east and Haryana telecom circles and renamed it
under Hutch Brand.
2004: Launched its three additional telecom circles of India namely Punjab,
Uttar Pradesh and West Bengal.
2005: Acquired BPL, another mobile services provider in India
2007: Vodafone acquired HTIL stake in Hutchison Essar.
Vodafone acquired Dishnet Wireless , a service provider in Orissa and has
launched its services in the following circles successfully .

Vodafone Background:
Vodafone founded in 1983 as racal Telecom, and later as an Independent in
1991.Its headquarters are in Berkshire, UK. It is the world's second-largest mobile
telecommunications company measured by both subscribers and 2011 revenues
behind China, and had 439 million subscribers as of December 2011.
Vodafone owns and operates networks in over 30 countries and has partner
networks in over 40 additional countries. Its Vodafone Global Enterprise division
provides telecommunications and IT services to corporate clients in over 65
countries. Vodafone also owns 45% of Verizon Wireless, the largest mobile
telecommunications company in the United States measured by subscriber

On July 2011, Vodafone Group agreed terms for the buy-out of its
partner Essar from its Indian mobile phone business. The UK firm paid $5.46
billion to its Indian counterpart to take Essar out of its 33% stake in the Indian
subsidiary. It will leave Vodafone owning 74% of the Indian business, while the
other 26% will be owned by Indian investors, in compliance with Indian law. On
11 February, 2007, Vodafone agreed to acquire the controlling interest of 67% held
by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance
Communications, Hinduja Group, and Essar Group, which is the owner of the
remaining 33%. The whole company was valued at USD 18.8 billion .The
transaction closed on 8 May, 2007. It offers both prepaid and
postpaid GSM cellular phone coverage throughout India with good presence in the
metros.
Vodafone India provides 2.75G services based on 900 MHz and 1800 MHz digital
GSM technology. Vodafone India launched 3G services in the country in the
January-March quarter of 2011 and plans to spend up to $500 million within two
years on its 3G networks.

Products and Services offered by Vodafone

The products and services offered by Vodafone are- voice, messaging, data and
fixed broadband services through multiple solutions and supporting technologies to
deliver on its total communications strategy. The advancements in 3G networks
and download speeds, handset capabilities and the mobilization of internet
services, have contributed to an acceleration of data services usage growth.
Products promoted by the Group include Vodafone live!, Vodafone Mobile
Connect USB Modem, Vodafone Connect to Friends, Vodafone Eurotraveller,
Vodafone Freedom Packs, Vodafone at Home, Vodafone 710 and Amobee Media
Systems.
On sept Vodafone acquired Hutchison Essar at at $13.3bn ($11.1 bn plus $2 bn
debt). Hutchison Essar valued at $18.8 bn 2007, controlling interest of 67% of
Holdings.
Why & How this Deal Took place: None of its recent global acquisitions ,including those of
Mannesmann,telecom business in Japan and Belgium were performing
up to the mark
Markets including US , were maturing and were not growing in a big
way
Stiff Competition among all major players in the industry, including
global telecom majors like BT,O2 OF UK, Maxis Telecommunications of
Malaysia ,Orascom from EGYPT,the Hinduja group,Reliance and
Bharti AIRTEL

How did Vodafone benefitted through this deal:

In October 2009, it launched Vodafone 360,a new internet service for the mobile,
PC and Mac. This was discontinued in December 2011 after disappointing
hardware sales. This was after The Director of Internet Services resigned in
September 2010 tweeting "5 days before I leave Vodafone. Freedom beckons."\ In
February 2010, Vodafone launched world's cheapest mobile phone known as
Vodafone 150, will sell for below $15 (10) and is aimed at the developing world.
It will initially be launched in India, Turkey and eight African countries including
Lesotho, Kenya and Ghana.

Year
ended 31
March

Turnover
mn

Profit
before tax
mn

Profit for
the year Basic eps
mn

Proportionate
customers (mn)

2011

45,884

9,498

7,870

15.20

347.7

2010

44,472

8,674

8,618

16.44

341.1

2009

41,017

4,189

3,080

5.81

302.6

2008

35,478

9,001

6,756

12.56

260

2007

31,104

(2,383)

(5,297)

(8.94)

206.4

2006*

29,350

(14,835)

(21,821)

(35.01)

170.6

2005

34,073

7,951

6,518

9.68

154.8

2004

36,492

9,013

6,112

8.70

133.4

Synergies from this Deal: Vodafone- Acquisition