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The Hutchison Essar Acquisition:

Vodafones Foray into an Emerging Market


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Vodafones Foray Into India Vodafone was looking to enter Indian market. But FDI

Policies Were not Favorable

On Feb 11, 2007 a Vodafone Group Plc an UK BasedTelecom Company Acquired Hutchison Essar LTD (HEL).

Vodafone Bought A 52% Stake for US$ 11.1billion from

Hutchison Telecom International.

Hutchison Essar Was Valued at US$ 19.3 Billion. There Were Several Competitors like Reliance

Communication, Essar and Hinduja Group.

The Biggest Deal Ever in the Indian telecom industry.


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Cont.. HEL had an 29.2million Subscriber base in july 2007

and had an PAN INDIA Presence in 13 of total 28

circles in the country. Also had highest ARPU of Rs.340.15.

The Final Deal Price was a discounted amount of US$

10.9 billion.

The Acquisition realized Vodafones desire to enter

emerging markets in a big was as a counter to the

markets developed countries that were saturated.


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Background -Vodafone

Vodafone was established in 1982 when RacalStrategic Radio Plc, a subsidiary of Racal Electronics

Plc. Later it was de-merged from Racal Electronics and

named the Vodafone Group in 1991 by accounting its20 percent shares of its value in to London stock

Exchange. During its expansion in overseas it purchases Air

Touch Communication Inc in the US and changed itsname to Vodafone Air Touch Plc.


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Hutchison Essar Ltd HEL was one of the leading mobile operators in India.

It was the fourth largest service provider in terms ofcustomer numbers.

HEL was a Joint venture between HTIL and Essar. Theystarted their services under the brand name Hutch in1994 after it acquired the cellular license for the Mumbaicircle.

The company was initially set up as a joint venturebetween HTIL and Max India Ltd.

In July 2005, Essar bought a 64 percent stake in BPLCellular Ltd. for US$ 1.156 billion, making it the largest

ever acquisition in the Indian telecom sector at that time


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The Slugfest Before initiating the bidding process, Vodafone had to clear many regulatory

issues.

Stake with Bharti Airtel of 10%.

Clearances from regulatory bodies like FIPB, TRAI.

Essar made a bid of US $ 11 billion to acquire remaining 52% stake in HEL. Priority

as already a partner in the venture.

Other contenders in race.

Essar Group

Anil Ambani-owned Reliance Communications

The UK-based Vodafone

Private equity (PE) players.

Malaysias Maxis Communications

Egyptian Telco Orascom


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The Aftermath On March 22, 2007, Vodafone signed a shareholder agreement with its

Indian partner, Essar, according to which

Vodafone - 52%Essar- 33%

Minority shareholders, such as Asim Ghosh (Ghosh), Infrastructure

development finance company (IDFC) and Analjit Singh together holds 15

per cent stake in the company.

Vodafone and Essar came to an agreement to run HEL jointly and agreed

to change the name of the company to Vodafone Essar.

Vodafone sold back to Bharti its 5.6% direct stake in Bharti for US $ 1.6 bn.


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Outlook

Vodafone planned to bring world class branding to India after

the 'Hutch' brand was replaced by the Vodafone. Vodafone wanted to take 3G to the rural areas to provide hi-

speed data services to the rural masses

Invest US $ 2 billion to expand its reach in rural areas.

Introduce ultra-low cost handsets in the rural market,procured from China.


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Porters Five forces Analysis


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Rivalry against Existing competitors

The major competitors were:

1. BSNL & MTNL(State Owned companies)

2. Reliance telecommunications, Bharti Airtel, Essar

and Orascom (Private India Owned Companies)


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Bargaining Power of Customers

There was no such provision as the tariffs were

decided by the company itself or in other words

service providers were the main drivers.

Bargaining power of suppliers

Mobile handset providers: Vodafone took low costhandsets from ZTE.

Software providers had a strong bargaining power.


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Threats from new entrants Uninor

Stel

DOCOMO

MTS

Threats from substitutes

Landline market in rural areas mainly provided by

BSNL being a substitute of mobile technology was a

threat to Vodafone.


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SWOT AnalysisStrength:

Vision to become global leader

Good & strong relationship with customers Best & latest Technologies

Weakness:

Shortage of expensive and costly material Meeting needs of each and every customer was a

difficult task


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SWOT AnalysisOpportunity:

Targeting and expanding into rural area

To become a pan- Indian operator like BSNL etc Introduce several ultra low cost handsets

Threat:

Competitors New entrants

Change in service as a change in taste.


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What, according to you, promoted Vodafone to

expand into the emerging markets? Do you thinkVodafones acquisition of Hutchison Essar will

help it in this regards?

Fast growth industry in Indian mobile market

3G services with high speed data services widely

spread in Indian market

In terms of making heavy profit


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Critically analyze Vodafones decision to acquire

Hutchison Essar. Discuss whether it would havebeen more beneficial for Vodafone of it had

started business on its own from scratch rather

than acquiring Hutchison Essar?

Hutchison Essar deal was overpaid

FDI allowed 74% stake of foreign companies in

telecom sector. Which could have helped them to get started

services of their own


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Discuss HTILs strategy of exiting the highly

lucrative Indian market after it has developed

business in India from scratch?

700% return on its investment in India Exit was well timed

With future expansion, HTILs investment would have been

non profitable


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Thank You !!!!

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