M&a of Telecommunication Sector in India

8/7/2019 M&a of Telecommunication Sector in India

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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 providetelecommunication 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 13in 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 licenseapplications for the seven remaining licenseareas.

� 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) andGujarat 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 operatedin 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 withoperations only in Mumbai, where it still operates under the brand 'LoopMobile'.

� 2007: V

odafone 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 startsits 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 competitionincreased and India has emerged to be second largesttelecom market.

� Indian Telecom sector was one of the fastest growingsector between 2002-07 with a CAGR (Compoundedannual 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 infrastructurebuilding. That time just 40% of the countryhad coverage with mobility and cellular andthis 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 inthe urban market was an added advantageand it was felt that whenever these serviceswould be started, Vodafone would havecompetitive 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 lucrativedeal 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 throughthis 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 forHutch-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, RelianceCommunications,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 theacquisition.



Whats next???????



33%

Get back the rest 33% stake from essar

company



Thank youThank you

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M&a of Telecommunication Sector in India