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Mergers and acquisition-

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cost competency

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Merger
• In business or economics 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.
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Acquisition

• An acquisition, also known

as a takeover, is the buying
of one company (the ‘target’)
by another.

• An acquisition may be
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Need to merge…
• Gain market Share
• Economies of Scale
• Enter new Markets
• Acquire Technology
• Utilization of Surplus Funds
• Managerial Effectiveness
• Strategic Objective
• Vertical Integration

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VODAFONE
purchased stake in
HUTCH
(Hutchison Telecom
International)
for
USD 11.08 billion
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"The announcement is a clear evidence of how we are executing our

strategy of developing our presence in the emerging markets. Hutch
Essar is an impressive, well-run company that will fit well into the
Vodafone Group
-Arun Sarin, CEO, Vodafone Ltd., in February 2007

"We exit the Indian market as one of the best capitalized telecom
companies in the region which will enable us to react swiftly to new
opportunities and to accelerate growth in our existing markets.
-Canning Fok, Chairman, HTIL, in May 2007

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cqu isition
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ger & A
Me r

Fourth largest deal of the year 2007 (to date) at $13.3

Deal size and bn ($11.1 bn plus $2 bn debt). Hutchison Essar valued at
stake $18.8 bn.

Vodafone acquisition is subject to a number of

Regulatory approvals including from the Department of
Approvals Telecommunications and the Government (FIPB).
Foreign Application for an approval from the FIPB still not been
Investment approved due to issues relating to the total direct
Promotion and indirect foreign holding in Hutchison Essar.
Board
Foreign Direct Press Note 5 of 2005 provides that direct and indirect
Investment foreign shareholding in a telecom company cannot
Policy exceed 74%.

The Department of Telecommunication has given its

Department
nod All licensing conditions to be met by Vodafone.
of Telecom

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Financing the deal
• least leveraged

• $5 billion from the sale of its Japanese unit

• $1.62 billion cash from its 5.6 per cent stake sale in
Bharti.

• cash reserves in excess of $3 billion.

• sold its 25 per cent stake in Swisscom Mobile and exited

Belgium

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Synergies Claimed

Vodafone gets access to the fastest growing mobile phone market in

the world that is expected to touch 500 million subscribers by 2010.

• Cellular penetration in rural India is below 2%, but 67% of India’s

population lives in rural India

• Hutchison-Essar is not just the #4 player, but also one of the better-
run companies with higher average revenue per subscribers.

• 3G is set to take off in India, allowing data and video to ride on

cellular networks. Vodafone already offers 3G elsewhere in the world.

• India is key to Vodafone strengthening its presence in Asia, a region

seen as the big telecom story

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Principal benefits

The principal benefits to Vodafone of the transaction

are:
• Accelerates Vodafone’s move to a controlling
position in a leading operator in the attractive and
fast growing Indian mobile market
a) - India is the world’s 2nd most populated country
with over 1.1 billion inhabitants
b) - India is the fastest growing major mobile market
in the world, with around 6.5 million monthly

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Driving additional value in Hutch Essar

a) - Accelerated network investment driving

penetration and market share growth
b) - Infrastructure sharing MOU with Bharti plans
to reduce substantially network opex and capex
c) - Potential for Hutch Essar to bring Vodafone’s
innovative products and services to the Indian
market, including Vodafone’s focus on total
communication solutions for customers

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Hutch Essar delivers a strong existing

platform in India

a) Nationwide presence with recent expansion to 22 out of

23 licence areas (“circles”)
b) - 23.3 million customers as at 31 December 2006,
equivalent to a 16.4% nationwide market share
c) - Year-on-year revenue growth of 51% and an EBITDA
margin of 33% in the six months to 30 June 2006
d) - Experienced and highly respected management team

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Increases Vodafone’s presence in

higher growth emerging markets
• - Proportion of Group statutory EBITDA from the
EMAPA region expected to increase from below
20% in the financial year ending 31 March 2007
(FY2007) to over a third by FY2012

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ECONOMIC TIMES
Posted on Sep 20, 2007 at 16:36 - Since 1802

Hutch becomes Vodafone from

To conquer the second-largest The media blitz would include TV and

tomorrow telecom market in the world,

Vodafone will spend around Rs
300-400 crore (Rs 3 to 4
newspapers advertisements, while a
portion would also go for hoarding and
online promotional activities.

ERE billion) on an ad blitz spread

over the next six to eight
months.
Vodafone-Essar will spend
around Rs 10-15 crore (Rs 100
to 150 million) a circle in the
country, that would result in Rs
230-345 crore (Rs 2.3 billion to
3.45 billion) for the total 23
circles. This would be mainly
for the rebranding exercise,
while an additional Rs 50-75
crore (Rs 500 to 750 million)
would be spent for
advertisements, sources
familiar with the development
told Business Standard.
STAR WAR
Leading broadcaster Star India has
entered into an exclusive deal with
Vodafone Essar for the latter's re-
branding campaign to Vodafone from
Hutch.
Vodafone ads will monopolise ad
space on all Star India’s network
channels for the next 24 hours. Till
2000 hrs, IST September 21 only
Vodafone ads will air – no other
brand’s ads and no internal promotions
will be shown during this period

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ECONOMIC TIMES
Posted on Sep 20, 2007 at 16:36
- Since 1802

Main Pupose:
• Creating awareness (spreading
information):
firstly, the advertising aims to make
the audience know that the product
or service is available in the market
and explain exactly what it is.

Vodafone’s ad campaign “Hutch is

Now Vodafone” was informative in
nature.

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Reasons for Hutchison’s Exit

a) Urban markets in the country had become saturated.

b) 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 investments
c) HTIL also wanted to use the money earned through this deal to
fund its businesses in Europe
d) The sale of its interests in India will enable Hutchison Telecom
to become one of Asia’s best capitalized companies
e) Relations between Hutchison Telecom and the Essar group of
India will be key to the sale of Hutch's 67% stake in Hutch-
Essar

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Immediate challenges
a) The cellular telephony is extremely competitive, and India has
one of the lowest ARPUs in the world. Besides, ARPU growth
is slowing.

b) • It has an uneasy equation with Essar, which is one-third

partner in Hutch-Essar.

c) • The Vodafone brand is relatively unknown in the Indian

market. Besides the brand will cost money and take time.

d) • Telecom valuations are at a high and this could mean it is

years Vodafone recovers its multi-billion dollar investment

e) • Its big competitors are home-grown majors, who can

manage the ‘environment’ better.

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Hurdles of the deal

a) Telecom Watchdog, a non-governmental group, which alleged

breach of foreign direct investment regulations.

b) Ministry suggesting appointment of inspectors to investigate

the actual ownership of mobile services company Hutchison
Essar.
c) The Foreign Investment Promotion Board (FIPB) had earlier
sought the views of Law Ministry about Vodafone's proposed
acquisition of Hutchison Telecommunication International Ltd's
stake in the Indian mobile company.

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THANK
YOU

SEC-M

GROUP 5

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