The Hutchison Essar Acquisition: Vodafone's Foray into an Emerging Market

            
 
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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Case Details:

Price:

Case Code : BSTR275 For delivery in electronic format: Rs. 300;
For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges

Themes

Mergers | Acquisitions | Strategic Alliances | Growth Strategy
Case Length : 15 pages
Period : 2006-2007
Pub Date : 2008
Teaching Note : Available
Organization : Vodafone, Hutchison Essar
Industry : Telecom and Broadband
Countries : India, UK

Abstract:

In the year 2007, the world's largest telecom company in terms of revenue, Vodafone Plc (Vodafone) made a major foray into the Indian telecom market by acquiring a 52 percent stake in the Indian telecom company, Hutchison Essar Ltd (Hutchison Essar), through a deal with the Hong Kong-based Hutchison Telecommunication International Ltd. (HTIL). It was the biggest deal in the Indian telecom market. Vodafone's main motive in going in for the deal was its strategy of expanding into emerging and high growth markets like India. In 2007, India had emerged as the fastest growing telecom market in the world outpacing China. But it still had low penetration rates, making it the most lucrative market for global telecom companies.

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Though Hutchison Essar was one of the established players in this market, HTIL had exited India as the urban markets in the country had become saturated. Future expansion would have had to be only in the rural areas, which would lead to falling average revenue per user (ARPU) and consequently lower returns on its investments. HTIL also wanted to use the money earned through this deal to fund its businesses in Europe.

Vodafone had to face face many obstructions in clinching the deal - initial opposition for the Indian partner of HTIL, Essar Ltd., aggressive bidding by competitors, as well as regulators who took their time to approve the deal. But in the end, Vodafone bagged the deal outbidding other competitors. Though some critics felt that Vodafone had overpaid for Hutchison Essar, Vodafone contended that the price was worth paying as the deal would help it get a massive footprint in one of the most competitive telecommunication markets in the world.

Issues:

The case will help the students to:

Understand the importance of international mergers and acquisitions as a growth strategy in the era of globalization.

Understand the opportunities that emerging markets such as India offer to global business enterprises.

Understand the issues and challenges faced by global business firms expanding into emerging markets.

Understand the entry and exit strategies adopted by firms operating in the international markets.

Understand the importance of the government's policy in influencing the business strategy of a firm.

Contents:

  Page No.
Vodafone's Foray into India   1
Background Note   2
Mobile Telephony in India   4
Vodafone Eyes Hutchison Essar   6
Other Contenders for the Bid   8
The Slugfest   8
The Aftermath   10
Outlook   11
Exhibits   12

Keywords:

Growth strategy, Merger & Acquisition, Emerging market, Telecom , Consolidation , Vodafone, Hutchison, Bharti Airtel, Reliance

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