The Hutchison Essar Acquisition: Vodafone's Foray into an Emerging Market
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Case Code: BSTR275 Case Length: 15 Pages Period: 2006-2007 Pub Date: 2008 Teaching Note: Available |
Price: Rs.300 Organization: Vodafone, Hutchison Essar Industry: Telecom and Broadband Countries: India, UK Themes: Mergers, Acquisitions, Strategic Alliances, Growth Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Mobile Telephony in India
The mobile telephony revolution started in India when the GoI decided to allow private sector participation in the Indian telecom sector. The new telecom policy of 1994 envisioned provision of world class telecom services at least to those who could afford to pay for them. In 1994, licenses were issued by Department of Telecommunications (DoT) to the private operators to start mobile services in the four metropolitan cities of Delhi, Mumbai, Chennai, and Calcutta (now Kolkata)...
Vodafone Eyes Hutchison Essar
In 2006, GoI raised the FDI limit in the telecom sector from 49% to 74%. The government increased the FDI limit in the sector after protracted lobbying by telecom players who were in dire need of capital...
Other Contenders for the Bid
Vodafone wasn't the only company eyeing HEL, however. The fast growth of the Indian mobile market coupled with a relatively low penetration level made it a very lucrative market. So it was no wonder that Vodafone's announcement started the race for the acquisition of HTIL's stake in HEL among several interested players. Some of the important players in the fray were Reliance, Bharti Airtel, Essar and Orascom...
The Slugfest
Before initiating the bidding process, Vodafone had to clear many regulatory issues. Bharti Airtel, in which Vodafone had a 10% stake, asked its partner to make it clear whether Vodafone wanted to continue its relation with it. Moreover, as GoI's telecom policy allowed only 74% of FDI into the sector, Vodafone's acquisition of a 67% stake in HEL would lead to the company crossing the limits of FDI allowed as both the players would be operating in the same circles...
The Aftermath
On March 22, 2007, Vodafone signed a shareholder agreement with its Indian partner, Essar, according to which Vodafone would hold a 52% and Essar would continue to hold a 33% stake. Some other minority shareholders, such as Asim Ghosh (Ghosh), Infrastructure development finance company (IDFC) and Analjit Singh together would continue to hold the remaining 15 per cent stake in the company...
Outlook
Vodafone planned to bring world class branding to India after the 'Hutch' brand was replaced by the Vodafone brand name. Vodafone wanted to build up its numbers in the Indian market mostly by expanding into the rural areas. Vodafone also wanted to launch a 3G service in the Indian market as soon as the government declared the 3G policy. Rather than using the 3G services as a premium product targeted at upscale segment, Vodafone wanted to take 3G to the rural areas to provide hi-speed data services to the rural masses...
Exhibits
Exhibit I: Vodafone- Consolidated Profit and Loss Account (Preliminary)
Exhibit II: List of Cellular Service Providers in India
Exhibit III: Market Share of Mobile Operators by Subscribers in India
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