Presented by – Nayan Patel

INTRODUCTION

In 1992 Hutchison Whampoa and its Indian business partner established a company that in 1994 was awarded a license to provide mobile telecommunications services in Mumbai.

By the time of Hutchison Telecom's Initial Public Offering in 2004, Hutchison Whampoa had acquired interests in six mobile telecommunications operators providing service in 13 of India's 23 licence areas and following the completion of the acquisition of BPL that number increased to 16.

In 2006, it announced the acquisition of a company (Essar Spacetel - A subsidiary of Essar Group) that held licence applications for the seven remaining licence areas.

Continued -

Then it also targeted business users and high-end post-paid customers which helped Hutchison Essar to consistently generate a higher Average Revenue Per User than its competitors.

Continued -

Vodafone maintains the 74 percent FDI limit.

Hutchison held 52 per cent, Analjit Singh and Asim Ghoshtogether hold 15 per cent, while Essar holds 33 per cent.

In Essar’s stake, 22 per cent is held abroad (Mauritius) as a foreign investor, and the balance 11 per cent as a domestic investor. Technically, therefore, Vodafone can pick up another 22 per cent.

Hutch was often praised for its award winning advertisements which all follow a clean, minimalist look. Its successful ad campaign in 2003 featured a pug named Cheeka following a boy around in unlikely places, with the tagline, Wherever you go, our network follows. The simple yet powerful advertisement campaigns won it many admirers.

Continued -

TV COMMERCIAL

Vodafone was formed in 1984 as a subsidiary of Racal Electronics.

It was fully demerged from Racal Electronics Plc and becamean independent company in September 1991, at which time itchanged its name to Vodafone Group.

Following its merger with AirTouch Communications, the Company changed its name to Vodafone AirTouch on 29 June1999 and, following approval by the shareholders in GeneralMeeting, reverted to its former name, Vodafone Group, on 28 July 2000.

Vodafone

Continued -

Vodafone announces agreements with both Microsoft and Yahoo! to bring seamless Instant Messaging services to the mobile which can be accessed from both the PC and mobile handsets.

With Google, Vodafone announces its intention to develop a location-based version of Google Maps.

With eBay, Vodafone announces it is to offer the new eBay mobile service to customers.

Arun Sarin Gets Stumped!, emphasises Vodafone’s foray into emerging markets like Turkey, Romania, Africa and India.

At a time, when Vodafone was eager to make a mark in India – world’s fastest-growing mobile market – Hutchison Telecommunications International Ltd. offered to sell off its majority stake in Hutchison Essar.

Continued -

Vodafone need -

Vodafone wants to expand into the asian markets. India has 2nd largest merket for mobile. It is growing at the rate of 6 million subscribers per month.

hutch want to sell –

Major Reasons for sell are :

Hutch-Essar : mutual distrust

The right time to quit Indian operations to finance other operations. Li Ka-Shing was the 10th richest man globally in 2006. In the early 1990s, he sold his stake in Star TV to Rupert Murdoch for $825 million.

Why Take Over

HUTCH HUTCH HUTCH

The biggest one is a presence in a market of 143 million subscribers that's growing at a rate of 5 per cent on a month-on-month basis

Fourth largest mobile operator in India with 24.41 million subscribers

16.41% of the Indian mobile market, present in 16 of 23 circles.

Accounted for 41 per cent of Hutchison Telecommunication International’s revenues

Revenues of $908 million (Rs 4,086 crore) in H1 2006.Operating profits of Rs 1,017 crore.

CONTENDERS IN RACE

Essar Group

Anil Ambani-owned Reliance Communications

The UK-based Vodafone

Private equity (PE) players.

Malaysia’s Maxis Communications

Egyptian Telco Orascom

VALUATION

Average Revenues per User

It had the highest ARPUs – Rs 374(Avg Rs335)

perspective of the buyer

market share

$54.8 billion Vodafone bagged Hutchison Essar,

it valued the company at $18.8 billion or $770 per subscriber

VALUATION OF HUTCH ESSAR

-Value ($ billion)

-Hutch Essar 100% enterprise value: 18.8

-0Hutch Essar debt: 1.33

-Equity Value: 17.47

-Value of 67% stake: 11.10

-Other Debt: 0.63

-Net Value: 11.08

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

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

HURDLES OF THE DEAL

Telecom Watchdog, a non-governmental group, which alleged breach of foreign direct investment regulations.

Ministry suggesting appointment of inspectors to investigate the actual ownership of mobile services company Hutchison Essar.

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.

Men behind the deal

Li Ka Shing, Chairman, Hutchison Whampoa.

Superman' Shing at home in Hong Kong, 78-year-old Li Ka Shing is famed for his ability to exit businesses at the right price. His deal with Vodafone, would give him $11.1 billion, a coup considering he entered the Indian entity for as little as $2.6 billion.

Arun Sarin, CEO, Vodafone

Vodafone's CEO since 2003, Sarin's bid would give him access to 24.4 million customers in one of the world's biggest and fastest growing markets.

Anil Ambani, Chairman, Reliance - ADAG

He had earlier claimed that his group would be able to raise adequate cash to acquire Hutchison's stake in Hutch-Essar.Today Ambani said that his bid was on lines of `financial conservatism' as articulated earlier, in the face of `challenging valuations'.

Canning Fok, Chairman, Hutchison Telecom International Ltd

Li Ka Shing may call the shots in the Vodafone-Hutch deal. But 55-year-old Canning Fok is the man in the hot seat. Canning is best known for his push towards exiting the 2G space by selling out Orange in 1999, and using the $20-billion plus profits almost directly into 3G.

D.Durai

focuses on mergers and acquisitions, real estate and technology law. His experience in the telecom, technology and media sectors includes assisting in domain name disputes, advising on patent strategy, drafting online trading rules for a stock exchange, and negotiating the procurement of a telecom networ.

IMMEDIATE CHALLENGES

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

• It has an uneasy equation with Essar, which is one-third partner in Hutch-Essar. Tht could be a source of problem.

• The Vodafone brand is relatively unknown in the Indian market. Besides the brand will cost money and take time

• Telecom valuations are at a high and this could mean it is years Vodafone recovers its multi-billion dollar investment

• Its big competitors are home-grown majors, who can manage the ‘environment’ better.

STRAREGY TO GO AHEAD

Rebranding

Operations

Essar’s option