[Vodafone acquires Hutch.

]
Subject : Mergers & Acquisitions Project
Project : Vodafone Hutchsion Deal
In-charge : Ms. Neetika Batra
Students Engaged : Amit Puri 2012BLP013
Anuj Thakur 2012BLP024
Hersh Sharma 2012BLP049
Janmaijai Dhayani 2012BLP037
Karan Lalit 2012BLP026
Kushagra Sharma 2012BLP023
 Graphical representation of M&As…

> Increasing Partner Commitment

> Out Corporate Alliances Traditional M&A
sourcing
Partial Solution JV
Partial
Shared Partial
Joint Acquisitions
Licensing resources & Acquisitions Non Controlling
Contract competencies Controlling Ventures
Services <= 50% >= 50%
Cross Platform JV 100%
Acquisition
Contractual Collaborative

> Increasing Degree of Integration

>
 Why did Hutch wanted to exit ?
 Urban markets in the country had become saturated.
 Future expansion 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
investment.

 HTIL also wanted to use the money earned through this

deal to fund it's business in Europe.

 The sale of the its interest in India will enable HTIL to

 Why Hutch ?
National
Regional
Costumers 32466 29960 25551 23306 12442 10249 4513 2450

Market Share 22.8 21.2 18 16.4 8.8 7.2 3.2 1.7

Circles/Total 23/23 23/23 23/23 22/23 13/23 20/23 2/23 2/23

CDMA/
Technology GSM GSM
GSM GSM GSM CDMA GSM GSM
 Why India ?
Let’s go back to Dec 2006…
Population in Million Mobile penetration in %age

India is world’s 2nd most populated

country… ….and mobile penetration was relatively very
low.
Penetration expected to exceed 40% by 2012 and exceed by 50% in the longer
 Why India ?
Let’s move ahead of Dec 2006…
250 19.9 24

Teledensity (in percent)

Subscribers (in million)

18.3 20
200
16
150 12.8
9.1 225.21 12
100 7.0 206
5.1 8
140.3
50 98.4 4
53 76
0 0
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (as
of June2007)

Telecom Subscriber Base Teledensity

 Nature of Merger.

• Horizontal Merger
• Vertical Merger
> Two companies that are in direct competition
• Market-extension
and share the sameMerger product lines and
• Product
markets. Extension
• Conglomeration
Transaction
Nature of Transaction.

Share Asset
Acquisition Acquisition

Cash Payment to
Injection Seller

Staggering Management Earn-

Call Option Out
Payment

Retained Earnings
 Key highlights of the Deal.

 Acquisition of companies (Hutchison Telecom) that control Hutch Essar

 Transaction consideration: $11.1bn (£5.7bn)

 Implied enterprise value: $18.8bn (£9.6bn)

 Partnership agreement with Essar

 Vodafone has full operational control

 I wanna buy Hutch!

Vodafone
Reliance Communication
Essar
Hindujas
Orascom (Egypt's telecom giant)
 Financial Implications.

 The Essar Group (“Essar”) currently holds a 33% interest in Hutch Essar and
Vodafone will make an offer to buy this stake at the equivalent price per
share it has agreed with HTIL

 The estimated pre-tax gain from the sale is expected to be approximately

$9 billion to Hutchison Telecom International Ltd

 Vodafone to increase capital investment, particularly in the first two to three

years

 ROI exceeding the local risk adjusted cost of capital in the fifth year and an
IRR of around 14%.
 Financial Implications. (contd.)

 Vodafone will continue to hold its 26% interest in Bharti Infotel Private Limited
(“BIPL”), which is equivalent to an indirect 4.4% economic interest in Bharti.

 Vodafone and Bharti have entered into a MOU relating to a comprehensive

range
of infrastructure sharing options in India.

 Vodafone's path towards building its Indian empire was far from easy.
Numerous
financial and regulatory roadblocks presented themselves. It had already made
one foray into the market in 2005, when it bought a 10% stake in Bharti
 What could have been different ?

 Some say > Vodafone may have overpaid for Hutchison Essar.

 Per analysis > Vodafone actually overpaid by 30% to 45%.

• According to analysis, the fair value of Airtel's mobile services is about
Rs25,000 (about $600) per subscriber.
• By contrast, Vodafone agreed to pay Rs35,000 per subscriber for Hutchison
Essar.

 Average revenue per user for Indian telecoms providers is Rs5,400, while the
operating margin is around 32% or Rs1,728 per customer per year.
• “It seems Vodafone will take a long time to break even in the Indian market”.
•“Innovative services may give Vodafone an edge, but it will not be a significant
one”.
 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%.

 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 were transferred through illegal routes to many countries. The stake is being
held
indirectly by the two individuals against Asim Gosh, MD Hutch, and Analjit Singh on
 Taxation Issues.

 Vodafone was asked to pay 11,217.95 crore in taxes by IT

authorities, the largest tax demand ever made.

 Vodafone stated that both the foreign companies, that is

Vodafone International Holding BV & Hutchison
Communication International Ltd had happened outside India
and hence overseas transaction cannot be taxed in India.
 Did Benefits Benefited ?
 Vodafone is declared 80% growth in it’s customer base after 11 months
of its acquisition of Hutch.
 By 2009 it had 71.5 million subscribers (customer penetration at 34%).
 Vodafone was declared the second largest mobile service provider by
revenue in India. (2009)
 In India it reported revenues of £2,689 million from £1,822 million in 2009
year ending.

And they are still benefitting >

 Vodafone India reported a growth of nearly 9 per cent in revenue to 1.03
billion pounds during the first quarter ended June 30, 2011.
UP UP AND AWAAAYYYYYY…..

Thank You!!!