SOP-3,A3MIdHUN VARGhESE

RAVIKAnthSreejith.t.gVIMAL.A.P

VODAFONE struggle

SOP OWNERMrs.SOUMYA.V.IYER

CONTENTS

INTRODUCTIONIN THE MONTH OF MAY 2007 GLOBAL MOBILE GIANT VODAFONE VENTURED INTO THE

INDIAN TELECOM INDUSTRY BY BUYING OUT 67% STAKE IN HUTCHISON ESSAR.THE DEAL

WAS WORTH $11.1 BILLION AND WAS THE BIGGESTFDI IN INDIAN TELECOM INDUSTRY

EVER.

IN THE MONTH OF SEPTEMBER THE INCOME TAX DEPARTMENT SENT A

SHOW CAUSE NOTICE TO VODAFONE ESSAR FORMERLY HUTCHISON ESSAR ASKING

THEM TO PAY $2 BILLION AS CAPITAL GAIN TAX.

VODAFONETHE NAME VODAFONE COMES FROM VOICE DATA FONE

HEADQUARTERED IN BERKSHIRE ENGLAND, UK.

VODAFONE FOUNDED 1983 AS RACAL TELECOM,

LARGEST MOBILE TELECOMMUNICATIONS NETWORK

COMPANY IN THE WORLD BY TURNOVER

VODAFONE MARKET VALUE OF ABOUT £75 BILLION

VODAFONE CURRENTLY HAS EQUITY INTERESTS IN 25

COUNTRIES AND PARTNER NETWORKS IN A FURTHER 42

COUNTRIES.

AT 31 MARCH 2008 VODAFONE HAD 260 MILLION PROPORTIONATE CUSTOMERS IN 25 MARKETS ACROSS 5 CONTINENTS. ON THIS MEASURE IT IS THE SECOND LARGEST MOBILE TELECOM GROUP IN THE WORLD BEHIND CHINA MOBILE.

VODAFONE ARE THE SPONSERS OF ENGLISH CRICKET TEAM ,ROMANIA NATIONAL FOOTBALL TEAM.

CONTD…..

VODAFONE ESSARVODAFONE ESSAR , PREVIOUSELY HUTCHISON ESSAR IS A CELLULAR OPERATOR IN INDIA THAT COVERS 16 TELECOM CIRCLES IN INDIA. IT OFFERS BOTH PREPAID AND POST PAID GSM CELLULAR PHONE COVERAGE .DESPTE THE OFFCIAL NAME BEING VODAFONE ESSAR, ITS PRODUCTS ARE SIMPLY BRANDED VODAFONE. VODAFONE ESSAR IS OWNED BY VODAFONE 52%,ESSAR GROUP 33% AND OTHER INDIAN NATIONALS 15%.THE TRANSACTION TAKEN PLACE ON 8th MAY 2007.AND VODAFONE ESSAR IS THE FOURTH LARGEST WIRELESS OPERATOR IN INDIA.

HWL started mobile business in 1983 in our home market of Hong Kong and now serves approximately 28 million customers.

Is a leading global mobile service and data services provider operating with a high growth strategy in 14 countries. It is a dynamic and agile player with a strong track record as:

The first to market with an international 3G video mobile network under the “3” brand;

One of the most agile and profitable 2G mobile voice and data network operators As a major owner and operator of the fibre optic broadband and fixed-line networks in Hong Kong, serving as a telecoms gateway to China.

HUTCHISON TELECOMMUNICATION INTERNATIONAL LTD

CONTD…

Hutchison Whampoa owns direct majority interests in all 3-networks, except

3 Hong Kong and 3 Indonesia.

These networks are majority-owned by the publicly listed Hutchison

telecommunications International Limited (HTIL), in which Hutchison Whampoa has a

50.003 percent majority interest.

HUTCHISON listed on the Hong Kong and New York stock exchanges in October

2004.

Hutchison Telecom is a market leader, in eight dynamic markets.

HUTCHISON ESSAR

HUTCHISON WAS WAS THE FIRST FOREIGN COMPANY TO GET OWNERSHIP IN

AN INDIAN TELECOM SERVICE COMPANY

HUTCHISON TELECOMMUNICATION INTERNATIONAL LIMITED(HTIL)

WAS THE MAJOR STAKE HOLDER IN THIS CONCERN WITH A STAKE OF

42% .ESSAR HAD 26% AND OTHER INSTITUTIONAL INVESTORS HOLDED 30%.

CONTD…..

Increase in sales/revenues

Venture into new businesses and markets

Profitability of target company

STRATEGIC MOVE.

Decrease competition(from the perspective of the acquiring company)

Enlarge brand portfolio.

What brought them to merger

VODAFONE TAKEOVER

Vodafone(Briton)A Foreign company

Takes over HTIL(Whampoa group of Li-Ka Shing.

Hong KongA foreign company

Hutchison Essor

Indian Company

Essor group

Asim Ghosh-12%A.Singh and other companies

(Minority)

67%

CASEINCOME TAX DEPARTMENT IMPOSED $2 BILLION CAPITAL GAIN ON

THE MEGER.

ON MAY 16 ,2008 PARLIAMENT PASSED AN AMMENDMENT TO ALLOW

THE GOVT. TO TAKE ACTION AGAINST COMPANIES WHICH DO NOT

WITHHOLD TAXES.THE AMMENDMENT WAS MADE TO SEC.191,201.

THE AMMENDEMENT ALLOWES I.T DEPARTMENT TO COLLECT

CAPITALGAIN TAX RETROSPECTIVELY.

CASE (CONTD….)

IN A RESPONSE TO I.T DEPARTMENT MOVE VODAFONE

CHALLENGED

THE AMMENDEMENT OF IT ACT SEC 191 AND 201 WITH

RESTROSPECTIVE EFFECT.

VODAFONE CHALLENGED SECTION 195 I.T.ACT IN MUMBAI

HIGH COURT AS THE OUTSIDE TRANSACTION.

THE DEPARTMENT IS SEEKING CAPITAL GAIN TAX OF $2 BILLION AS

WELL AS 18% INTEREST ON IT AS PENALTY FOR NOT WITHHOLDING

TAX, TAKING THE TOTAL CLAIM NEARLY TO $2.5 BILLION.

CASE ( CONTD…)

VODAFONE ARGUED THAT SUCH A TAX IMPOSITION WAS OUTSIDE THE JURISDICTION OF MINISTERY OF FINANCE AS TWO COMPANIES WERE NOT BASED IN INDIA

IF VODAFONE FAILS THE CASE ,WILL HAVE TO FACE A TAX BILL OF $4BILLION WHICH IS DOUBLE THE AMOUNT THAT EXPECTED.

INCOME FROM CAPITAL GAIN

TRANSFER OF CAPITAL ASSETS RESULTS IN CAPITAL GAINS.

A CAPITAL ASSET IS DEFINED UNDER SECTION 2(14) OF

I.T ACT 1961,AS PROPERTY OF ANY KIND BY AN ASSESSE

SUCH AS REAL ESTATE,EQUITY SHARES,JWELLERY,PAINTING,

ART etc.BUT NOT INCLUDED SOME ITEMS LIKE STOCK IN

TRADE FOR BUSINESS AND PERSONAL EFFECTS.

Exceptions - income tax act

THE AMALGAMATED COMPANY IS AN INDIAN COMPANY

EXCEPTION

IF SHARES OF INDIAN CO.HELD BY FOREIGN BEFORE

MERGER AND SUCH FOREIGN CO. TAKEN OVER BY

ANOTHER FOREIGN CO.

ATLEAST 25% OF THE FOREIGN CO. (BEFORE MERGER)

TO BE SHARE HOLDERS OF THE NEW FOREIGN CO.

Conclusion

India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent.As the case is pending in the HIGH COURT OF MUMBAI,we cannot draw a clear conclusion to this case

BIBILOGRAPHY

ECONOMIC TIMES

FT.COM

WIKIPEDIA

FORBES

QUERIES ?

THANK YOU