Vodafone acquires control of Hutch Essar

Presented by: Group 4Aashay Singhal (08IB-002)Amalendu Mukherjee (08IB-010)Amit Kumar Jain (08IB-011)Jaysurya Deb (08IB-019)Devendra Garg (08IB-020)Nikhil T Zaveri (08IB-035)Tapaswini Patra (08IB-056)

Submitted To:

Dr. R.L. Chawala

International Business

Hutchison Essar

Established its presence in India1994.

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

Will able to generate huge cash for launch of operations in Vietnam and Indonesia

HTIL Suffers loss of HK$768 million in 2005

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 in telecom subscribers

Low teledensity (depicting large untapped potential)

TelecomAdvantage

225.21206

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150

200

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2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (asof June2007)

Sub

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(in m

illion

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4

8

12

16

20

24

Tel

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sity

(in

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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

…So was Vodafone Essar!

Rome was not built in a day

Roadblocks during deal & International Business Angle

Regulatory Framework

Regulation

74% FDI Investment

Lack of Transparency in Spectrum & License Allocation

Deregulation virtually complete and Unified Licensing regime

3G Policy & MNP still Pending

Hutchison Essar(Indian Company)

Vodafone(Briton)A Foreign company

HTIL(Whampoa group of Li-Ka Shing.

Hong KongA foreign company

67%

Takes over

Asim Ghosh-12%A.Singh and other companies

(Minority)

Essar group

Hiccups and Stumbling Blocks

Stake Holders

Top Runners for Deal

VodafoneReliance Communication

Essar

HindujasOrascom (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.

• 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

Legal Issues continued…

EU pitches for Vodafone

European Union put pressure on Indian government to give Vodafone a fair chance in Hutch deal

“The Indian  government must give the UK based

telecom company  Vodafone a fair chance in

the bidding for a stake in the Indian mobile service

provider Hutch,”

The European Union Trade, Commissioner Peter Mandelson 

The European Union Trade, Commissioner Peter Mandelson 

"Any Indian company can come and buy any

business in UK. We need to make sure it becomes a

two-way process”

UK Secretary of State for Trade and Industry Alistair DarlingUK Secretary of State for Trade and Industry Alistair Darling

Quote Unquote

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

Referenceshttp://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