A Business Valuation report on
TELECOM INDUSTRY MERGERS AND ACQUISITIONS
VODAFONE AND HUTCH ESSAR CASE STUDY
Growth Strategies
OrganicInorganic
Mergers and Acquisitions
Motives Behind M&AEconomies of ScaleIncreased revenue / Market ShareCross sellingCorporate SynergyTaxesGeographical or other diversification
Types of MergersHorizontalVerticalConglomerate
Vodafone - BackgroundSubsidiary of Racal Electronics in 1984Demerged from Racal Electronics Plc. and became and
independent company in September 1991. Changed its name to Vodafone Group
Headquarter in Newbury, Berkshire, EnglandOperations in 25 countries and partner networks in a further
42 countriesVodafone Essar is owned by Vodafone 52%, Essar Group
33%, and other Indian nationals, 15%On February 11, 2007, Vodafone agreed to acquire the
controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion
The whole company was valued at USD 18.8 billion
Hutchison Essar Hutchison Whampoa and its Indian business
partner – Max Group, established Hutchison Max in 1992
In 1994, Hutchison Max acquired a majority stake in Essar Group and entered Delhi, UP, Haryana and Gujarat.
Till 2005, Hutchison had 13 license which increased to 16 after the acquisition of BPL Mobile
In 2006, it acquired Essar Spacetel — A subsidiary of Essar Group, adding six further license
Highest market share and generate a higher Average Revenue Per User (ARPU) than its competitors
The Takeover
Vodafone(A foreign company)
HTIL (Whompoa group of La-KA
Shing, Hong Kong
HUTCHISON ESSAR
(Indian Company)
12% Minority
ESSAR GROUP
67%
Takes over
Why takeoverVodafoneWanted to expand into the Asian market. India was
2nd largest market for mobile.
HutchisonMutual DistrustSaturation of urban market. Expansion in rural
market would lead to falling average revenue per user(ARPU)
Best time to quit Indian operation to finance other operation. HTIL wanted to use the money earned through this deal to fund its business in Europe
Principle Benefits
Attractive and fast growing Indian mobile marketHutch Essar delivers a strong existing platform in
India (22 out of 23 license areas , YoY revenue growth of 51% and an EBITDA margin of 33% in the six months to 30 June 2006 )
Infrastructure sharing with Bharti to reduce the total cost of delivering telecommunication services
Accelerated network investment, driving penetration and market share growth
Both expected to benefit from increased purchasing power and the sharing of best practices
ValuationAverage Revenue per UserHad the highest ARPUs – Rs. 374 (Avg. Rs
335)Market shareBuyer perspectiveValued Hutchison Essar at $18.8 billion or
$770 per subscriber
ValuationHutchison 100% enterprise value: $18.8
billionHutch Essar debt: $1.33 billionEquity Value: $17.47 billionValue of 67% stake: $11.10 billionOther Debt: $0.63 billionNet Value: $11.08 billion
Financing the dealleast 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
Post MergerThe Vodafone-Hutch deal is one of the
largest M&A deal executed by overseas firm in Indian subcontinent
Vodafone business in India has been successfully integrated into the group
Has over 44 million customersVodafone acquisition of hutch is a major
contributor to its revenue, with over 50 per cent pro forma revenue growth
Thank You
From : Aditi Sharma Vishvendra Singh Rajput