Vodafone acquires control

of Hutch Essar

Presented by: Group 4

Submitted To: Aashay Singhal (08IB-002)
Amalendu Mukherjee (08IB-010)
Dr. R.L. Chawala Amit Kumar Jain (08IB-011)
Jaysurya Deb (08IB-019)
Devendra Garg (08IB-020)
International Business Nikhil T Zaveri (08IB-035)
Tapaswini Patra (08IB-056)
 Hutchison Essar
 Established its presence in India1994.

 Acquired cellular license for Mumbai.

 Operations in 16 circles.

 Customer around 20 millions.

 Vodafone Group Plc
• Vodafone Group Plc is the world's leading mobile
telecommunications company
• Significant presence in Europe, the Middle East, Africa, Asia
Pacific and the United States
• Group had 289 million customers till Dec, 2008
• The Company's ordinary shares are listed on the London
Stock Exchange and NYSE
• The Company had a total market capitalization of
approximately £74 billion at 31 December 2008.
Key highlights of acquisition
• Acquisition of companies (Hutchison Telecom) that control
Hutch Essar

• Transaction consideration: US$11.1bn (£5.7bn)

• Implied enterprise value: US$18.8bn (£9.6bn)

• Partnership agreement with Essar

• Vodafone has full operational control
• Avoidance of paying a control premium; liquidity rights granted
in years 3-4
Why Hutch was willing to sell its stake in
Hutchison Essar?

Aid in creating value in emerging mobile markets and realizing the

same for the benefit of shareholders at the right time

HTIL Suffers loss of HK$768 million in 2005

Will able to generate huge cash for launch of operations in
Vietnam and Indonesia
The Company did not declare any dividends for the year ended
31 December 2006.
These are speculations as HTIL has not been discloses the
reason for sale
• Why Vodafone interested to
acquire control in Hutch Essar??
India: Fastest Growing Free Market Democracy
 Indian Telecom Sector
• Fastest Growing Sector – CAGR 22% (2002-07)

• Second Largest Telecom Market

– Lowest tariff charges in the world
– Wireless Subscribers – 315.3 Mn
– Wireline Subscribers – 38.4 Mn
– Tele-density – 30.6

• 23 Circles - 4 Categories ( Metro, A, B & C)

• Bharti Airtel – Largest player with presence in 23 Circles

Hutch Essar and Vodafone

Controlling interest in a major, fast growing market

Meets twin financial investment criteria

Strong management team with good cultural fit

Vodafone and Essar will derive greater value together

India: A very large market
Why Mad Rush for Telecom ??

Large number of additions Low teledensity (depicting Telecom

in telecom subscribers large untapped potential) Advantage

250 24

Teledensity (in percent)

Subscribers (in million)

18.3 19.9 20
200
12.8 16
150
9.1 12
225.21
100 7.0
206 8
5.1 140.3
50 98.4 4
53 76
0 0
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (as
of June
2007)
Telecom Subscriber Base Teledensity
Indian mobile market
One of only 4 major mobile operators in India
Strong penetration growth potential
Penetration by circle category (Dec-06)

Nationwide penetration currently at 13%; expected to exceed 50% longer term

 Hutch Essar Footprint and
Competitive Positioning

Source: Vodafone annual report 07-08

 Business Propositions

• Critical first mover advantage in Mumbai/Delhi

• Well established National Corporate business – leading market share
• Investment required for SME/SOHO

• Only operator in India integrated into an international mobile

company
– international voice and data roaming
– unique offers for multinational corporate accounts
• Access to proven product portfolio
• Mobile office expertise
Rome was not built in a day

…So was Vodafone Essar!

 Roadblocks during deal
&
International Business Angle
Regulatory Framework
 74% FDI Investment

 Lack of Transparency in
Spectrum & License
Allocation
Regul
ation  Deregulation virtually
complete and Unified
Licensing regime

 3G Policy & MNP still

Pending
Hiccups and Stumbling Blocks
Stake Holders

Takes over HTIL(Whampoa group

Vodafone(Briton) of Li-Ka Shing.
A Foreign company Hong Kong
A foreign company

67%
Essar group
Hutchison Essar
(Indian Company) Asim Ghosh-12%
A.Singh and other companies
(Minority)
Top Runners for Deal

Vodafone
Reliance Communication
Essar
Hindujas
Orascom (Egypt's telecom giant)
Essar was biggest hurdle in deal for Vodafone

• Relations between Hutchison and Ruias of Essar group

have never been cordial
• Hutch and Essar have gone to the courts and the
government several times in the last few years over
• Initially want complete control over company
• Essar wants equal partnership
• The Ruias -- who have decided not to sell their stake -- have
been looking at legal options to challenge the HTIL claim
• Opposed acquisition by Vodafone
 Legal Issues
• Alleged that with the purchase of a majority of shares of the Hutch by
Vodafone, the FDI in the telecom service provider had crossed 89.03
per cent
• FIPB seeks details on 15% stake held by minority shareholders Ashim
Ghosh and Analjit Singh in its Indian mobile venture Hutch-Essar
• Court directs authorities to initiate prosecution under various sections
of the Foreign Exchange Management Act (FEMA)
• A petition against Asim Ghosh- MD Hutch, and Analjit Singh, saying
huge amount of funds had been transferred through illegal routes to
various countries.
Legal Issues continued…
• The stake is being held indirectly by the two
individuals against Asim Ghosh- MD Hutch, and
Analjit Singh on behalf of Vodafone.
• The sale-breached India's Foreign Exchange
Management Act and the licensing conditions for
providing telecommunications services in India
EU pitches for Vodafone
European Union put pressure on Indian government
to give Vodafone a fair chance in Hutch deal

Quote Unquote "Any Indian company can

come and buy any business
in UK. We need to make sure
it becomes a two-way
process”
“The Indian  government must give
the UK based telecom company 
Vodafone a fair chance in the UK
UK Secretary
Secretary of
of State
Statefor
forTrade
Trade
bidding for a stake in the and Industry Alistair Darling
and Industry Alistair Darling
Indian mobile service provider
Hutch,”

The
TheEuropean
EuropeanUnion Trade,
Union Trade,
Commissioner
Commissioner PeterMandelson 
Peter Mandelson 
September 21, 2007
September 21, 2007
 Conclusion
Vodafone creating value in India

Controlling position in a leading operator with nationwide

presence
Strong existing platform for growth

Additional value under Vodafone ownership

Increased Vodafone’s presence in high growth markets

Increased presence of big Global Players in India

References
http://www.trai.gov.in

http://www.vodafone.com

http://www.afaqs.com/perl/news/case_studies/index.html?mid=13

http://www.indiaprwire.com/pdf/news/20188.pdf

http://www.vodafone.com/start/media_relations/news/local_press_releases/india/vod

afone_essar_press/vodafone_is_here_.html

http://www.tonsetelecom.com/pdf%20files/B_E_Feb07.pdf

http://www.rediff.com/money/2007/mar/08hutch.htm

http://www.domain-b.com/companies/companies_v/vodafone/20070212_control.htm