SIDDHARTHA SHEKHAR


ROLL NO 63

CORPORATE RESTRUCTURING

MERGERS AND ACQUISITIONS IN INDIA

We have been learning about the companies coming together to from

another company and companies taking over the existing companies
to expand their business.

With recession taking toll of many Indian businesses and the feeling of
insecurity surging over our businessmen, it is not surprising when we
hear about the immense numbers of corporate restructurings taking
place, especially in the last couple of years. Several companies have
been taken over and several have undergone internal restructuring,
whereas certain companies in the same field of business have found it
beneficial to merge together into one company.

Corporate restructuring refers to a broad array of activities that

expands or contracts a firms operation or substantially modify its
financial structure or bring about a significant change in its
organizational structure and internal functioning. It includes mergers,
takeovers, acquisitions, slump sales, demergers etc.

Mergers, acquisitions and restructuring have become a major force in

the financial and economic environment all over the world. Essentially
an American phenomenon till mid-1970s, they have become a
dominant global business theme since then.

On the Indian scene, too, corporates are seriously looking at mergers,

acquisitions and restructuring which has indeed become the order of
the day. The pace of corporate restructuring has increased since the
beginning of the liberalization era, thanks to greater competitive
pressures and a more permissive environment.
Mergers, acquisitions and restructuring evoke a great deal of public
interest and perhaps represent the most dramatic facet of corporate
finance. This report discusses various facets of mergers

COMPANY PROFILE

GC Cables & Broadband Servics is a "Category A" (all India) ISP

licence holder. It offers its Internet, broadband and cable services under an
exclusive arrangement with the company IndusInd Media and
Communications (IMC), using their existing cable network across India. 



IMC commenced operations in 1995 and has built up India's largest cable
television (CATV) network. It currently provides multi-channel transmission
services under the brand name INCableNet and ranks amongst the 12 largest
cable TV operators in the world in terms of subscribers. In addition to
Mumbai, IMC's network covers 11 major cities in northern, southern and
western India viz: Delhi,Agra, Hyderabad, Banglaore, Ahmedabad, Nasik,
Belgaum, Indore and Nagpur. IMC is well advanced in its plan for
development of Pay TV platform with Interactive TV/internet capability.

In cognizance with the Company's plans for technological convergence, GC

Cables & Broadband Servics has joined hands with IMC to provide Internet,
broadband and cable services over the existing cable network.

Users across Mumbai will thus have access to high-quality Internet services
round the clock.The Company plans to provide this service in 49 cities across
the country


The proceeds of the investment are being used for enhancing the
broadband capabilities and expansion to other cities.

Servicing over 25,000 users covering SOHOs, corporates, cyber cafés and
cable home
 INTRODUCTION TO MERGERS & ACQUISITIONS:-

In a general sense, mergers and acquisitions are very similar corporate actions -
they combine two previously separate firms into a single legal entity. Significant
operational advantages can be obtained when two firms are combined and, in fact, the
goal of most mergers and acquisitions is to improve company performance and
shareholder value over the long-term.



The motivation to pursue a merger or acquisition can be considerable; a company that
combines itself with another can experience boosted economies of scale, greater sales
revenue and market share in its market, broadened diversification and increased tax
efficiency. However, the underlying business rationale and financing methodology for
mergers and acquisitions are substantially different.



A merger involves the mutual decision of two companies to combine and become one
entity; it can be seen as a decision made by two "equals". The combined business,
through structural and operational advantages secured by the merger, can cut costs and
increase profits, boosting shareholder values for both groups of shareholders. A typical
merger, in other words, involves two relatively equal companies, which combine to
become one legal entity with the goal of producing a company that is worth more than
the sum of its parts. In a merger of two corporations, the shareholders usually have their
shares in the old company exchanged for an equal number of shares in the merged
entity.



A takeover, or acquisition, on the other hand, is characterized the purchase of a smaller
company by a much larger one. This combination of "unequal" can produce the same
benefits as a merger, but it does not necessarily have to be a mutual decision. A larger
company can initiate a hostile takeover of a smaller firm, which essentially amounts
to buying the company in the face of resistance from the smaller company's
management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a
cash price per share to the target firm's shareholders or the acquiring firm's share's to
the shareholders of the target firm according to a specified conversion ratio. Either way,
the purchasing company essentially finances the purchase of the target company,
buying it outright for its shareholders.

In this context, it would be essential for us to understand what corporate restructuring

and mergers and acquisitions are all about.

MERGER:-
Mergers involve the mutual decision of two companies to combine & become one
entity. The combined business can cut cost of operation & increase profit which will
boost shareholders value for both groups of shareholders. In Merger of two
corporations, shareholders usually have their shares in the old organization & are
exchanged for an equal numbers of shares in the merged entity.

According to the Oxford Dictionary “merger” means “combining of two companies into
one”. Merger is a fusion between two or more enterprises, whereby the identity of one
or more is lost and the result is a single enterprise. In merger the assets and liabilities of
the companies get vested in another company, the company that is merged losing its
identity and its shareholders becoming shareholders of the other company. All assets,
liabilities and the stock of one company are transferred to Transferee Company in
consideration of payment in the form of:
• Equity shares in the transferee company,
• Debentures in the transferee company,
• Cash, or
• A mix of the above modes.
In the pure sense, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals." For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, Daimler Chrysler, was created.

ACQUISITION:-

Acquisition in general sense is acquiring the ownership in the property. In the

context of business combinations, an acquisition is the purchase by one company of a
controlling interest in the share capital of another existing company.

On the other hand, Acquisition means the purchase of a smaller company by much
larger one. A larger company can initiate an Acquisition of smaller firm which essentially
amounts to buy the company in the face of resistance from smaller company’s
management. Unlike Mergers in an Acquisition the acquiring firm usually offers a cash
price per share to target firm’s shareholders.

Acquisition means an attempt by one firm to gain majority interest in the another firm
called target firm &dispose-off it‘s assets or to take the target firm private by small group
of investors.

A company can buy another company with cash, stock or a combination of the two.
Another possibility, which is common in smaller deals, is for one company to acquire all
the assets of another company.

An acquisition may be affected by;

(a) agreement with the persons holding majority interest in the company
management like members of the board or major shareholders commanding
majority of voting power;
(b) purchase of shares in open market;
(c) to make takeover offer to the general body of shareholders;
 (d) purchase of new shares by private treaty;
(e) Acquisition of share capital through the following forms of considerations viz.
means of cash, issuance of loan capital, or insurance of share capital.

There are broadly two kinds of strategies that can be employed in corporate
acquisitions. These include:

I. Friendly Takeover:-

The acquiring firm makes a financial proposal to the target firm’s management
and board. This proposal might involve the merger of the two firms, the
consolidation of two firms, or the creation of parent/subsidiary relationship.

II. Hostile Takeover:-

A hostile takeover may not follow a preliminary attempt at a friendly takeover. For
example, it is not uncommon for an acquiring firm to embrace the target firm’s
management in what is colloquially called a bear hug.
 HISTORY:-

Merger and acquisition activity in the United States has typically run in cycles,
with peaks coinciding with periods of strong business growth. U.S. merger activity has
been marked by five prominent waves: one around the turn of the twentieth century, the
second peaking in 1929, the third in the latter half of the 1960s, the fourth in the first half
of the 1980s, and the fifth in the latter half of the 1990s.

This last peak, in the final years of the twentieth century, brought very high levels of
merger activity. Bolstered by a strong stock market, businesses merged at an
unprecedented rate. The total dollar volume of mergers increased throughout the
1990s, setting new records each year from 1994 to 1999. Many of the acquisitions
involved huge companies and enormous dollar amounts. Disney acquired ABC Capital
Cities for $19 billion, Traveler's acquired Citicorp for $72.6 billion, Nation Bank acquired
Bank of America for $61.6 billion and Daimler-Benz acquired Chrysler for $39.5 billion.

TYPES OF MERGERS

TYPES OF MERGERS:-

There are three main types of mergers which are Horizontal merger, Vertical merger
& Conglomerate merger. These types are explained as follows;

1. Horizontal Merger:-
This type of merger involves two firms that operate & compete in a similar kind of
a business. Horizontal merger is based on the assumptions that it will provide
economies of scale from the larger combined unit. The economies of scale are
obtained by the elimination of duplication of facilities, broadening the product line,
reduction in the advertising cost. Horizontal mergers also have potentials to create
monopoly power on the part of the combined firm enabling it to engage in anti-
competitive practices.
Examples: -

• Mumbai - Glaxo India Limited and Smith Kline Beecham Pharmaceuticals

(India) Limited have legally merged to form GlaxoSmithKline
Pharmaceuticals Limited in India (GSK). A merger would let them pool
their research & development funds and would give the merged company a
bigger sales and marketing force.
• Merger of Centurion Bank & Bank of Punjab.
• Merger between Holicim & Gujarat Ambuja Cement ltd

2. Vertical Merger:-
A vertical Merger involves merger between firms that are in different stages of
production or value chain. A company involved in vertical merger usually seeks to
merge with another company or would like to takeover another company mainly to
expand its operations by backward or forward integration. The acquiring company
through merger of another units attempt to reduce inventory of raw materials and
finished goods. The basic purpose of vertical merger is to eliminate cost of
searching raw materials. Vertical merger takes place when both firm plan to
integrate the production process and capitalize on the demand for the product. A
company decides to get merged with another company when it is not in a position to
get strong position in a market because of imperfect market of intermediary product,
scarcity of resources.

Example: - Among the Indian corporate that have emerged as big international
players is the Videocon group. The group became the third largest colour picture
tube manufacturer in the world when it announced the purchase of the colour
picture tube business of France-based Thomson SA, which includes units in
Mexico, Poland and China, for about Rs 1260 crore.





 3. Conglomerate merger:-
Conglomerate mergers means mergers between firms engaged in unrelated
types of business activity. The basic purpose of such combination is
utilization of financial resources. Such type of merger enhances the overall stability
of the acquirer company and creates balance in the company’s total portfolio of
diverse products and production processes and thereby reduces the risk of instability
in the firm’s cash flows.

Conglomerate mergers can be distinguished into three types:

I. Product extension mergers These are mergers between firms in

related business activities and may also be called concentric mergers.
These mergers broaden the product lines of the firms.
II. Geographic market extension mergers: These involve a merger
between two firms operating in two different geographic areas.

III. Pure conglomerates mergers: These involve mergers between two

firms with unrelated business activities. They do not come under product
extension or market extension.

REASONS FOR MERGERS & ACQUISITIONS:-

There are many reasons or factors that motivate companies to go for mergers
and acquisitions such as growth, synergy, diversification etc.

1. Growth: One of the most common reason for mergers is growth. There are
two broadways a firm can grow. The first is through internal growth. This can
be slow and ineffective if a firm is seeking to take advantage of a window of
opportunity in which it has a short-term advantage over competitors. The
faster alternative is to merge and acquire the necessary resources to achieve
competitive goals. Even though bidding firms will pay a premium to acquire
 resources through mergers, this total cost is not necessarily more expensive
than internal growth, in which the firm has to incur all of the costs that the
normal trial and error process may impose. While there are exceptions, in the
vast majority of cases growth through mergers and acquisitions is significantly
faster than through internal means. Mergers can give the acquiring company
an opportunity to grow market share without having to really earn it by doing
the work themselves - instead, they buy a competitor's business for a price.
Usually, these are called horizontal mergers. For example, a beer company
may choose to buy out a smaller competing brewery, enabling the smaller
company to make more beer and sell more to its brand-loyal customers.
Example- RPG group had a turnover of only Rs. 80 crores in 1979, which has
increased to about Rs.5600 crores in1996. This phenomenal growth was due
to the acquisitions of several companies by the RPG group. Some of the
companies acquired are Asian Cables, Calcutta Electricity Supply and
Company, etc.

2. Synergy: Another commonly cited reason for mergers is the pursuit of

synergistic benefits. The most commonly used word in Mergers & Acquisitions
is synergy, which is the idea of combining business activities, for increasing
performance and reducing the costs. Essentially, a business will
attempt to merge with another business that has complementary strengths
and weaknesses. This is the new financial math that shows that 1 + 1 = 3.
That is, as the equation shows, the combination of two firms will yield a more
valuable entity than the value of the sum of the two firms if they were
operating independently.

Value (A + B) > Value (A) + Value (B)

Although many merger partners cite synergy as the motive for their
transaction, synergistic gains are often hard to realize. There are two types of
synergy one is derived from cost economies and other one is derived from
 revenue enhancement. Cost economies are the easier to achieve because
they often involve eliminating duplicate cost factors such as redundant
personnel and overhead. When such synergies are realized, the merged
company generally has lower per-unit costs. Revenue enhancing synergy is
more difficult to predict and to achieve. An example would be a situation
where one company’s capability, such as research process, is combined with
another company’s capability, such as marketing skills, to significantly
increase the combined revenues.

3. Diversification : Other reasons for mergers and acquisitions include

diversification. A company that merges to diversify may acquire another
company engaged in unrelated industry in order to reduce the impact of a
particular industry's performance on its profitability. The track record of
diversifying mergers is generally poor with a few notable exceptions. A few
firms, such as General Electric, seem to be able to grow and enhance
shareholders wealth while diversifying. However, this is the exception rather
than a norm. Diversification may be successful, but it needs more skill and
infrastructure than some firms have.

4. Economies of scale: Yes, size matters. Whether it's purchasing stationery or

a new corporate it system, a bigger company placing the orders can save
more on costs. Mergers also translate into improved purchasing power to buy
equipment or office supplies - when placing larger orders, companies have a
greater ability to negotiate prices with their suppliers. This refers to the fact
that the combined company can often reduce duplicate departments or
operations, lowering the costs of the company relative to theoretically the
same revenue stream, thus increasing profit.

5. Increase Market Share & Revenue: This reason assumes that the company
 will be absorbing a major competitor and increasing its power (by capturing
increased market share) to set prices. Companies buy companies to reach
new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community:
bigger firms often have an easier time raising capital than smaller ones.
Example-Premier and Apollo Tyres,

6. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or

one of the distributors, a business can eliminate a level of costs. If a company
buys out one of its suppliers, it is able to save on the margins that the supplier
was previously adding to its costs; this is known as a vertical merger. If a
company buys out a distributor; it may be able to sale its products at a lower
cost.

7. Eliminate Competition: Many mergers and acquisitions deals allow the

acquirer to eliminate future competition and gain a larger market share in its
product's market. The downside of this is that a large premium is usually
required to convince the target company's shareholders to accept the offer. It
is not uncommon for the acquiring company's shareholders to sell their
shares and push the price lower in response to the company paying too much
for the target company.

8. Acquiring new technology: To stay competitive, companies need to stay on

top of technological developments and their business applications. By buying
a smaller company with unique technologies, a large company can maintain
or develop a competitive edge and vice versa.
9. Procurement of production facilities: Procurement of production facilities
may be the reason for acquiring company to go for mergers and acquisition. It
is a kind of backward integration. Acquiring Firms will take the decision of
merging with another firm who supplies raw material to acquiring firm in order
to safeguard the sources of supplies of raw material or intermediary product.
It will help acquiring firm to bring economies in purchasing of raw material. It
will also help to cut down the transportation cost.
Example- Videocon takes over Thomson picture tube in China to procure
supply of picture tube required for producing television sets.

10. Market expansion strategy: Many firms go for mergers and acquisitions as
a part of market expansion strategy. Mergers and acquisitions will help the
company to eliminate competition and to protect existing market. It will also
help the firm to obtain new market for promoting their existing or obsolete
products.
For example, Lenovo takes over IBM in India to increase market for Lenovo
products like desktops, laptops in India.

11. Financial synergy: Financial synergy may be the reason for mergers and
acquisitions. Following are the financial synergy available in case of mergers
and acquisitions;
I. Better credit worthiness- This helps companies to purchase good on
credit, obtain bank loan and raise capital in the market easily.
II. Reduces cost of capital- The investors consider big firms as safe and
hence they expect lower rate of return for the capital supplied by them. So
the cost of capital reduces after merger.
III. Increase debt capacity- After the merger the earnings and cash flows
become more stable than before. This increase the capacity of the firm to
borrow more funds.
 IV. Rising of capital- After the merger due to increase in the size of the
company, better credit worthiness and reputation the company can easily
raise the capital at any time.

12. Own development plans: The purpose of mergers & acquisition is backed
by the acquiring company’s own developmental plans. A company thinks in
terms of acquiring the other company only when it has arrived at its own
development plan to expand its operation having examined its own internal
strength where it might not have any problem of taxation, accounting,
valuation, etc. but might feel resource constraints with limitations of funds and
lack of skill managerial personnel. It has to aim at suitable combination where
it could have opportunities to supplement its funds by issuance of securities;
secure additional financial facilities eliminate competition and strengthen its
market position.

13. Corporate friendliness: Although it is rare but it is true that business houses
exhibit degrees of cooperative spirit despite competitiveness in providing
rescues to each other from hostile takeovers and cultivate situations of
collaborations sharing goodwill of each other to achieve performance heights
through business combinations. The combining corporate aims at circular
combinations by pursuing this objective

14. General gains:

I. To improve its own image and attract superior managerial talents to
manage its affairs.
II. To offer better satisfaction to consumers or users of the product.
 15. Taxes: A profitable company can buy a loss maker to use the target's loss as
their advantage by reducing their tax liability. In the United States and many
other countries, rules are in place to limit the ability of profitable companies to
"shop" for loss making companies, limiting the tax motive of an acquiring
company.

➢ Ahmadabad Cotton Mills Merged with Arvind Mills ( Rs =3.34 crores)

➢ Sidhaper Mills merged with Reliance Industries Ltd.(Rs. 3.34 crores

PARTICIPANTS IN MERGERS AND ACQUISITIONS:-

Mergers and Acquisitions process requires highly skilled and qualified group of
advisers. Each advisor specializes in a specific aspect of the merger and acquisition
process. The role played by such advisers or professional experts are as follows;

1. Investment bankers: Investment banking is one of the most important

department in the process of mergers and acquisitions. It is fee based adviser
department which works with the company that wish to acquire other company or
with industries that wish to purchase a smaller industry. The main role of
investment banks is to provide finance for mergers and acquisitions transactions.
2. Lawyers: The legal framework surrounding a typical transaction has become so
complicated that no one individual can have sufficient expertise to address all the
issues. In large and complicated transactions, legal teams consists of more than
one dozen lawyers each of them represents specialized aspects of law. Lawyers
are expected to perform all legal proceedings.
3. Accountants: Services provided by accountants include advice on the optimal
tax structure, financial structuring and performing financial due diligence. A
transaction can be structured in many different ways, with each having different
tax implications for the parties involved. Tax accountants are vital in determining
the appropriate tax structure. Accountants also perform the role of auditors by
 reviewing the transferor company’s financial statements and operations through
a series of interviews with senior and middle level managers.
4. Valuation experts: They may be appointed either by the bidder or the
Transferor Company to determine the value of the transferor company. They
build models that incorporate various assumptions such as costs or revenue
growth rate.
5. Institutional investors: They include public and private pension funds,
insurance companies, banks, mutual funds. Collection of institutions can
influence firm’s action. They invest their money in the company.

TELECOM SECTOR IN INDIA

India's mobile telecom sector is one of the fastest growing sectors. Unlike in the 1990s
when the mobile phone was an elitist product, mobile operators now tap a mass market
with mass marketing techniques. "Unified licensing" rules allow basic and mobile
operators into each other's territory, and have ushered in perhaps the final phase of
industry consolidation. 



It seems that only companies with deep pockets can effectively compete as primary
operators mobile markets. Economies of scale, scope, and end-to-end presence in
long-distance as well as local telecom, are desirable.

There are, besides, new challenges. Operators are having to find new growth drivers for
the wire line business. There are problems of getting broadband to take off, of
technology choice, of when to introduce new technologies, and of developing a viable
business model in an era of convergence.

This report analyses the changing features, opportunities and challenges facing the
basic and mobile telecom services business. It covers the regulatory environment,
markets, new services and revenue sources, tariff structures, economics of the industry,
investment and technology issues, and the current and emerging competitive
environment.

Growth of mobile technology

India has become one of the fastest growing mobile markets in the world. The mobile
services were commercially launched in August 1995 in India. In the initial 5-6 years the
average monthly subscribers additions were around 0.05 to 0.1 million only and the total
mobile subscribers base in December 2002 stood at 10.5 millions. However, after the
number of proactive initiatives taken by regulator and licensor, the monthly mobile
subscriber additions increased to around 2 million per month in the year 2003-04 and
2004-05.

Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in
the early years because of the high price of hand sets as well as the high tariff structure
of mobile telephones. The New Telecom Policy in 1999, the industry heralded several
pro consumer initiatives. Mobile subscriber additions started picking up. The number of
mobile phones added throughout the country in 2003 was 16 million, followed by 22
millions in 2004, 32 million in 2005 and 65 million in 2006. The only countries with more
mobile phones than India with 156.31 million mobile phones are China – 408 million and
USA – 170 million.

India has opted for the use of both the GSM (global system for mobile communications)
and CDMA (code-division multiple access) technologies in the mobile sector.

The mobile tariffs in India have also become lowest in the world. A new mobile
connection can be activated with a monthly commitment of US$ 5 only. In 2005 alone
32 million handsets were sold in India. The data reveals the real potential for growth of
the Indian mobile market.

Next generation networks

In the Next Generation Networks, multiple access networks can connect customers to a
core network based on IP (internet protocol) technology. These access networks include
fibre optics or coaxial cable networks connected to fixed locations or customers
connected through wi-fi as well as to 3G networks connected to mobile users. As a
result, in the future, it would be impossible to identify whether the next generation
network is a fixed or mobile network and the broadband wireless access would be used
both for fixed and mobile services. It would then be futile to differentiate between fixed
and mobile networks – both fixed and mobile users will access services through a single
core network.

Indian telecom networks are not so intensive as developed country’s telecom networks
and India's teledensity is low only in rural areas. 670,000 route kilometers of optical
fibres has been laid in India by the major operators, even in remote areas and the
process continues. A rural network based on the extensive optical fibre network, using
Internet Protocol and offering a variety of services and the availability of open platforms
for service development, viz. the Next Generation Network, appears to be an attractive
proposition. Fibre network can be easily converted to Next Generation network and then
used for delivering multiple services at cheap cost.

Cellular Service Providers

As on Apr 2007 India has 167 million mobile phone subscribers. Out of this 125 million
are GSM users and 41 million CDMA users.
BSNL, Bharti Airtel, Hutch, Idea, Aircel, Spice and MTL are the main GSM providers in
India. Reliance Communications and Tata Indicom are the main CDMA providers in
India.
Bharti Airtel
Airtel is providing cellular services in Delhi, Mumbai, Kolkata, Chennai, Andhra Pradesh,
Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya
Pradesh, Maharashtra, Goa, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West
Bengal. Airtel is the No.1 cellular service provider in India using GSM technology. Airtel
has 23% market share in India with a total subscriber base of 38 million.
Reliance Communications
Reliance has both CDMA and GSM networks and total subscriber base of 29 million or
17% market share. It has GSM network in Assam, Bihar, Himachal Pradesh, Kolkata,
North East, Madhya Pradesh, Orissa and West Bengal. Reliance has CDMA networks in
other states and cities.
Bharat Sanchar Nigam Limited (BSNL)
BSNL is a state owned telecom company which has GSM presence in almost every
cities and towns. BSNL has 27 million subscribers with a market share of 16%.
Hutch
Hutch is another emerging GSM provider in India with coverage in Kerala, Mumbai,
Delhi, Kolkata, Chennai, Gujarat, Andhra Pradesh, Karnataka and Punjab with a total
subscriber base of 27 million.
Tata Indicom
Tata Indicom is a main CDMA provider in India with 16 million subscribers all over India.
Tata Indicom has presence in almost every states and cities in India
The leading cellular service providers have the following number of subscribers:

Service Provider No. of CDMA Subscribers No. of GSM Subscribers

Reliance 2.75 crores 38.76 lakhs

Tata 1.07 crores

Airtel 3.37 crores

MTNL 24.98 lakhs

BSNL 2.44 crores

Hutch 2.44 crores

Idea 1.3 crores

Spice 25.56 lakhs

BPL 10.62 lakhs

Aircel 48 lakhs

Bharti Airtel has the largest customer base with 31% market share, followed by Hutch
and BSNL with each holding 22% market share.

The 2007 budget has brought further relief to the customers with the reduction in the
tariffs, both local and long distance, and with slashing down the roaming rentals. This is
likely to lead to even more people going for cellular services and more and more use of
the value added services. However, landline telephony is likely to remain popular, too, in
the foreseeable future. MTNL, the largest landline service provider, has recently taken
some bold initiatives to retain its market share and, if possible, expand it.

Revenue and growth

The total revenue in the telecom service sector was Rs. 86,720 crore in 2005-06 as
against Rs. 71, 674 crore in 2004-2005, registering a growth of 21%. The total
investment in the telecom services sector reached Rs. 200,660 crore in 2005-06, up
from Rs. 178,831 crore in the previous fiscal.

Telecommunication is the lifeline of the rapidly growing Information Technology industry.

Internet subscriber base has risen to 6.94 million in 2005- 2006. Out of this 1.35 million
were broadband connections. More than a billion people use the internet globally.

The value added services (VAS) market within the mobile industry in India has the
potential to grow from $500 million in 2006 to a whopping $10 billion by 2009 (Music,
games to drive mobile VAS growth).

Merger or Acquisition in TELECOM Sector in India

Vodafone – Hutch

Indian Telecom Industry:

One of the fastest growing sectors in the country, telecommunications has been
zooming up the growth curve at a feverish pace in the past few years. The year 2007
saw India achieve the distinction of having the world's lowest call rates (2-3 US cents),
the fastest growth in the number of subscribers (15.31 million in 4 months), the fastest
sale of a million mobile phones (1 week), the world's cheapest mobile handset (US$
17.2) and the world's most affordable colour phone (US$ 27.42).
Trends

• Indian telecommunication firms added 5.19 million new subscribers in April 2007,
taking the total user base above 212.02 million.

• Wireless service providers continued to dominate user growth by adding 5.15

million subscribers in April, while 40,000 new fixed-line users signed up.

• At 500 minutes a month, India has the highest monthly 'minutes of usage' (MOU)
per subscriber in the Asia-Pacific region.

• India is emerging as a forerunner in using the cell phone as a tool to access the
Internet, with one in every 11 people logging on to the web across the world
through mobiles turning out to be an Indian.

• The country's telecom sector will see investments up to US$ 25 billion over the
next five years, projects global consultancy firm Ernst & Young.

• India is expected to register handset production of over 51 million units in 2007 to

record the highest growth in the Asia-Pacific region, according to technology
research firm Gartner.

• India produced nearly 31 million mobile phones in 2006 worth about US$ 5
billion. The production of handsets is set to increase by 68 per cent in units and
65 per cent in value terms in 2007. By 2011, production volumes are expected to
reach nearly 95 million units at a compound annual growth rate (CAGR) of 25 per
cent.

• The retail market for mobile phones -- handsets, accessories and airtime -- is
over US$ 15.6 billion and growing at the rate of 15-20 per cent.

• Massive infrastructure needs in India might provide a potential private equity role.
A recent study by telecom regulator Telecom Regulatory Authority of India (TRAI)
has estimated that the country will need about 350,000 telecom towers by 2010,
as against 125,000 in 2007.

• With a CAGR of 46 per cent, India has emerged as the fastest growing market in
the data centre-structured cabling market in the Asia Pacific region, according to
Access Markets International (AMI) Partners, a US-based consultancy agency.
 The data centre structured cabling market is expected to grow from US$ 19
million in 2005 to US$ 125 million in 2010. The overall structure cabling market is
expected to grow from US$ 127 million in 2005 to US$ 345 million by 2010 at a
CAGR of 22 per cent. .

• In May 2007, Indian GSM mobile phone service providers signed up 5.1 million
customers, taking total users to 130.6 million, the Cellular Operators' Association
of India said.

• The combined revenue of all operators from their mobile businesses would more
than double to US$ 33.1 billion by 2010, from about US$ 12.8 billion in 2006.

• The total revenue of all telecom operators is also set to nearly double to US$
43.6 billion in four years, from US$ 22.5 billion in 2006. The revenue share of
mobile business would rise to 76 per cent in the same period, from 57 per cent
currently. India, which is adding over six million mobile subscribers every month,
has surpassed Russia to become the third largest mobile market in the world
after China and the US. The total mobile subscriber base in the country is likely
to reach 425 million by March 2010 with Bharti Airtel (GSM) and Reliance (CDMA
and GSM) emerging as the top two mobile operators in terms of number of
subscribers.

The mobile industry should continue its strong growth. The country’s telecom
regulator, the TRAI, says that the rate of market expansion would increase with further
regulatory and structural reform. The adoption of Unified Licensing, a change in the
Access Deficit Charge regime, increased sharing of infrastructure and coverage of new
areas by operators will contribute to ongoing growth.
A very large market with significant growth potential

India is the worlds 2nd most .. where the mobile penetration

! !

Penetration expected to exceed 40% by FY2012 and exceed 50% in the longer term

Source: Informa, Analyst consensus.

The Indian telecom industry has lots of scope as only 13% of the mobile market is
penetrated and it still has a vast potential which is untapped. When this untapped
mobile market is compared with the growing population the scope further widens as
India is the 2nd most populous country in the world.
1.1 Indian Mobile Market

Circle – by- Circle Breakdown

Key Facts

India is divided into 23 license

territories or CIRCLES for the purpose of
mobile service.

Circles are categorized as follows

•Metros ( 4 largest cities )

•A circles (state with highest earning power)
• B Circles
•C Circles (state with least earning )

Each Circle typically has 5-6 Operators.

• Private GSM Operators on 900MHz.

• 1 Government Owned GSM Operator (BSNL/MTNL)
• 1 active private GSM operator on 1800MHz
 • 1-2 CDMA operators on 800MHz.

2. History of Hutch

Hutchison Telecom is a global provider of telecommunications services. It has

significant presence in nine countries and territories, and are market leaders in many of
them. Hutch currently offer mobile and fixed-line telecommunication services in Hong
Kong, and operate or are rolling out mobile telecommunication services in Macau, India,
Israel, Thailand, Sri Lanka, Ghana, Indonesia and Vietnam. Hutch was the first provider
of 3G mobile services in Hong Kong and Israel and operates brands including Hutch, 3
and Orange.

Overall, the offer encompasses voice services (including a range of enhanced

calling features), broadband data and multimedia services, mobile and fixed-line
Internet and intranet services, IDD and international roaming services, bandwidth
services and data centre services.

Together with its regional partners, Hutchison Telecom is a key player in the
multi-market telecommunications industry, with a growing customer base of about 30
million as of 31 December 2006
2.1 Strategies of Hutch

The guiding strategy of Hutch is to focus on mobile telecommunications services

markets which offer the best growth potential. Hutch enters these markets either
through “greenfield” developments or by acquisition, and brings our strengths in
network and product development, branding and customer service to create market
leaders.

Hutch believes that a combination of strong economic growth and favorable

demographic profiles in these markets will result in sustained growth in demand for our
services. Many of its markets are still significantly under-penetrated, and offer
tremendous scope for future growth. For example, in India the combination of vast
population and a very low penetration rate creates an enormous growth opportunity for
accessible and affordable mobile services.

Elsewhere - most notably in Hong Kong and Israel - the penetration of mobile
services has reached higher levels. As an early developer and market leader in 3G
technology, Hutch is ideally positioned to benefit from these trends. The companies that
comprise Hutchison Telecom enjoy a leading position in many of the markets in which
Hutch operate.

In all its markets, Hutch will leverage its experienced management team and our
track-record of successfully developing and operating mobile telecommunications
businesses to continue to grow and diversify our turnover and profits. In addition, Hutch
will continue to selectively acquire or invest in new businesses, in new markets as well
as in countries where Hutch is already present.
2.2 The Evolution of Hutch Essar

• 1992 : Hutchison entered India in partnership with Max

• 1994: C. Sivasankaran sells 51% stake in Delhi’s sterling cellular to Essar
Group
• 1995: Hutchison max mobile goes live in Mumbai; Essar Cellphone Starts
Service in Delhi
• 1996:Swisscom sells 49% stake in Essar cell phone to Hutchison
• 1998: Max Analjit Singh sells 41% stake in Hutchison Hong Kong
• 2000: Hutchison acquires 49% stake in sterling cellular buys Kolkata’s Usha
Martin Telecom
• 2001: Hutchison Buys 49% stake in Gujarat’s Fascel gets license for Karnataka
& Chennai
• 2003: Aircell Digling becomes part of hutch
• 2004: Essar picks France Telecom 9.9% Stake in BPCL Communication
• 2005: Hutchison Essar signed an agreement to acquire BPL for Rs.4400 crores
and Essar Spacetel, paving the way for nationwide coverage in India. Essar
Telecommunication holdings buys Max Telecom ventures 3.16% stake in
Hutchison Essar for Rs 657crore. Orascom Telecom became a shareholder in
Hutchison Telecom
• 2006: Hutchison Essar received licences to operate in six new licence areas,
positioning it for pan-India coverage.Kotak sells 8.3% stake to Analjit Singh for
Rs 1019crore. Hinduja sells 5.11% stake to Hutch for $450 million. Hutchison
wants to exit.
2. 3 Why is Hutch ready to sell?

Hutch is ready to sell its stake in Hutch Essar, India due to the following reasons:

• To help recoup its investment in 3G in mature markets - Hong Kong and Israel
• Tussle between Essar and Hutchison:There were also differences between
Hutchison and Essar over the merger of BPL Mobile with Hutch. The Essar
Group acquired BPL Mobile and merged it with Hutch Essar to raise its stake in
the latter to 33 per cent. Some differences over valuations and sorting out
regulatory hurdles in the key Mumbai telecom circle are believed to have
contributed to the dispute.
• Enterprise Value is 22-24 times is EBIDTA in as compared to its investment
initially.

3. Potential Suitors for the Bid

Suitor # 01: Vodafone – Arun Sarin, CEO

• Background: Largest mobile company - £ 29 billion
• Financial Health: Huge revenues - £ 29.35 billion in 2006, Net
Loss of over £ 21.8 billion - under fire from shareholders
• Presence: Across 26 countries. Partner networks – 34 countries,
!
Subscriber base of 190 million
Why is Hutch-Essar important: Limited presence in Asia: 3.3% in
China, Other markets like the UK, Germany and Australia
saturated.
Suitor # 02: Reliance Communication – Anil Ambani, Chairman
 • Background: Hutchison Essar fit well , commitments from
large banks, teaming with Carlyle Group.
• Financial Health: Third Quarter 2006-07 revenues of Rs.
3.525 crore, PAT – 702 cr.
!
• Presence: CDMA -21 circles, 25 million subscriber base. GSM
– 3.5 million subscriber in 8 circles.
Why is Hutch-Essar important: Undisputed leader in India – 50
million subscribers. Save $ 5 billion on capex and opex – 5 years
Suitor # 03: Ruia – Ravi Ruia, Vice Chairman
• Background: Flagship business is steel, refinery, just started
operations – early entrant into cellular telephony, decade
experience. 33% stake in HEL.

! • Financial Health: Steel and refining expected to generate Rs

45000-50000 cr
• Presence: 16 circles vis HEL.
Why is Hutch-Essar important: Headstart with 33% holding,
secure best valuation
Suitor # 04: Maxis – Jamaludin Ibrahim, CEO
• Background: Malaysia's largest operator – 7 million subscribers,
$ 13.5 billion 100% Hutch-Essar buyout – said to have dropped
out of the race.
• Financial Health: 2004-05, revenues stood (Rs. 8,060 cr) PAT
! (Rs. 2,164 cr)
• Presence: Malaysia, Indonesia and in India via Aircel – 74%
stake
Why is Hutch-Essar important: Indian operation – 7 circles,
subscriber base 4.2 million.
Suitor # 05: Hinduja – Ashok Hinduja, Executive Chairman
 • Background: Held 5.11% stake in Hutch-Essar, sold in mid
2005-06 for $ 450 million
• Financial Health: Revenues of $ 11 bn, raising cash is no
problem
!
• Presence: No global presence, 5.11% stake was a courtesy the
Hindujas presence in Gujrat circle.
Why is Hutch-Essar important: Looking at (finally) expanding in
India, biggest opportunity in Indian Telecom
Suitor # 06: Verizon Wireless – Ivan Seidenberg, Chairman and CEO
• Background: US’s Second Largest cellular operator, CDMA
technology, 57 million customers, 44% JV with Vodafone .
• Financial Health: Revenues of $ 32.3 billion, Operating income
! of $ 7.38 billion.
• Presence: Restricted to US.
Why is Hutch-Essar important: Any presence outside a
saturated US market is welcome

4. Vodafone Details

The beginnings of Vodafone can be traced to a small UK company called Racal

Electronics that was founded in 1985. The chronological history of Vodafone can be
inferred as under:

- It is the largest mobile operator in the world with barely any presence in India.
Vodafone’s presence was via a minority stake in India’s Bharti Airtel.
- If Vodafone needs to maintain its competitive edge it was very clear that they
needed to have a clear and identifiable India strategy.
- Buying Hutch Essar gives Vodafone instant access to about 23 million mobile users
in India.
- Building such a big user base would have taken Vodafone a long time to build.
- As one analyst said that Vodafone paid a high price for the strategic value of Hutch
Essar and that is the key to understanding Vodafone’s India strategy.

Vodafone can now bring its expertise and services from other countries to India. Over
the past couple of years Vodafone has sold its stake in Europe and Japan and
refocused its energy in countries where mobile and telecom services are on a huge
growth curve. These countries include Turkey, Egypt, South Africa and that trend clearly
shows that Arun Sarin, a seasoned telecom expert knows where the future revenue
streams for his company is located.In order for Vodafone to scale it needs to resolve
and come up with solutions for the infrastructure bottlenecks in India. Bharti Airtel and
Vodafone are reportedly going to share their network infrastructure. This sharing of
network will help Airtel and Vodafone penetrate into the rural areas, where Bharti Airtel
is spending about a couple of billion dollars this year.
 Why India?
19% CAGR
$43.6 Bn

4
$22.5 Bn 11

20
3
33

7 65

50

! CY2006 CY 2010

Mobile Voice, Mobile Data, Fixed Voice, Fixed Data

India being the second largest growing economy and also the telecom markets are
growing at a faster pace. The sustained economic and telecom market are the major
drives for Vodafone to enter the Indian Emerging Market.
 4. 2 If India, then why eyeing ONLY Hutch?

PLATFORM FOR FUTURE GROWTH

! ! !
! ! !
!
Customers 32,466 29,980 25,551 23,308 12,442 10249 4,513

000’s
M a r k e t 22.8 21.1 18.0 16.4 8.8 7.2 3.2
share (%)
No o f 23/23 23/23 23/23 22/23 13/23 20/23 2/23
Circles/
total
Technolog GSM CDMA/GSM GSM GSM GSM CDMA GSM
y

Vodafone eyed Hutch for the following reasons:

• The 2nd Largest customer base i.e. following BSNL (PSU)

 • It decent market share, though not in the top three. But acquiring the top three
market share leaders was just not possible.
• No. of circles covered by Hutch also made a lot of difference as the penetration
level in the mobile market is an important criteria for any telecom company in
today’s competitive scenario. This means there was not immediate necessity to
spend on the infrastructure requirements.
• The technology under Hutch purview was GSM, which was a perfect fit for
Vodafone.

The other reason for Hutch being targeted by Vodafone is as under:

Subscribers 22. 27 million 16.39% of mobile market;

biggest private GSM
operator after Bharti
New Subscribers 1 million every month Just behind market leader
Bharti
ARPUs* Rs. 374 Just behind market leader
Bharti
Circles 16 11.65 % over national GSM
average
Revenues Rs. 5,800 cr Present in all top circles

* ARPUs – Average revenues per user

5. Hutch Vodafone Synergy

Hutch-Essar has a strong presence in India so Vodafone would have a strong

base. These are the following ways Vodafone will capitalize on the Hutch-Essar
position:
 5.1 Distribution:

- They have very big advantage in terms of distribution as they have 1800 branded
shops all over India & still the previous owners of HTIL was aggressively expanding
the distribution network. The model of hutch consists of 1000 exclusive dealers for
contract & 300,000 retail outlets for prepaid.
- Now Vodafone will capitalized more on these aggressive strategy by investing more
on the existing model develop by hutch. Accelerate distribution rollout in line with
network roll out plans Proven retail experience in over 7000 retail stores globally
Vodafone is a world class brand & the brand name will help Vodafone.
5.2 Network:

Overall coverage of Indian population below 40% today

- Network performance comparable to major competitors in Hutch Essar 16 circles-

Hutch Essar network fully EDGE enabled
- BPL 3 circles: continued aggressive roll out of network
- Spacetel 6 circles: secure spectrum, build network and launch service
- Complete nationwide fibre backbone – 27,000 km today
5.3 Infrastructure:

Infrastructure sharing MOU with Bharti to enable industry leading cost structure for
sites. MOU outlines a process for achieving a more extensive level of site sharing

- sharing of tower, shelters, civil works, back-up diesel generators, power supply and
air conditioners
- separate electronics, spectrum and backhaul transmission
- benefits expected to commence during 2007
MOU covers both new and existing sites

– Around 1/3 of current Hutch Essar sites shared with other Indian mobile
operators
 – Longer term anticipated to result in approximately 2/3 of total sites shared

Significant capex and opex savings achievable for Hutch Essar

– US$1bn opex and capex savings over first 5 years

– opex saving improves EBITDA margin by c.1.5%

5.4 Targeted sharing of active infrastructure:

- Current regulatory consultation on broader infrastructure sharing to support rural

areas and teledensity target
- MOU with Bharti envisages the scope to include active infrastructure sharing
- potential to extend agreement to sharing of radio access network and access
transmission
- Potential significant additional savings on capex and opex

5.5 Brand:

The Hutch brand is across 16 circles:

- Strong consumer focus

- Recognized major business brand

6. Operational Plan for Hutch Essar

Vodafone will execute an operational plan to build on the strengths of Hutch

Essar in order to capture the Indian telecom growth opportunity.

6.1 Key strategic objectives

 In the context of penetration that is expected to exceed 40% by FY2012,
Vodafone is targeting a 20-25% market share within the same timeframe. The
operational plan focuses on the following objectives: Expanding distribution and network
coverage Lowering the total cost of network ownership, Growing market share, Driving
a customer focused approach

6.2 Site sharing

The MOU outlines a process for achieving a more extensive level of site sharing
and covers both new and existing sites. Around one third of Hutch Essar's current sites
are already shared with other Indian mobile operators and Vodafone is planning that
around two thirds of total sites will be shared in the longer term. The MOU recognises
the potential for achieving further efficiencies by sharing infrastructure with other mobile
operators in India. The MOU envisages the potential, subject to regulatory approval and
commercial development, to extend the agreement to sharing of active infrastructure
such as radio access network and access transmission.

6.3 Customer Focused Approach

Hutch Essar Management Vodafone Value Add

• Team that build the business •
• Highly experienced and
customer focused
management team
Senior Team
• Good Cultural fit
• Strong Challenger mentality
Proven expertise in
integrating and working with
local management teams
• Proven best practice and
benchmarking to accelerate
change
• Potential for specific skills
injection e.g. CRM/Data
 • Recognized industry leader • Invest and innovate to
• Comprehensive approach maintain industry leading
across call centres, retail, capabilities
C u s t o m e r internet, and automated • Introduce proven CRM and
Service systems customer management
• Industry leading process expertise
improvement based on
extensive customer research
• First stage nationwide • Customer insight systems
consolidation complete for • Purchasing scale benefits
16 circles
IT • Single billing system in 2007
• Capacity upgrades for all key
systems incl. data
warehouses. CRM and billinl

6.4 Financial assumptions

As part of the operational plan, Vodafone expects to increase capital investment,

particularly in the first two to three years, with capex as a percentage of revenues
reducing to the low teens by FY2012. The operational plan results in an FY2007-12
EBITDA CAGR percentage around the mid-30s. Cash tax rates of 11-14% for
FY2008-12 are expected due to various tax incentives and will trend towards
approximately 30-34% in the long term. As a result of this operational plan, the
transaction meets Vodafone's stated financial investment criteria, with a ROIC
exceeding the local risk adjusted cost of capital in the fifth year and an IRR of around
14%.

6.5 Financial impact on Vodafone

The transaction enhances Vodafone's growth profile on a pro forma statutory basis, with
Vodafone's revenue and EBITDA CAGR increasing by around one and a half % points
over the three year period to 31 March 2010.

The transaction is expected to be broadly neutral to adjusted earnings per share

in the first year post acquisition and accretive thereafter excluding the impact of
intangible asset amortization for the transaction. Including this impact, the transaction is
expected to be approximately seven percent dilutive to adjusted earnings per share in
the first year post acquisition and neutral by the fifth year.

The Board remains committed to its longer term targeted dividend payout of 60%
of adjusted earnings per share. Furthermore, the Board expects the dividend per share
to be at least maintained in the short term. The acquisition of HTIL's controlling interest
in Hutch Essar will be financed through debt and existing cash reserves and Vodafone
expects pro forma net debt of around £22.8-23.3 billion3 at 31 March 2007 as a result
of this transaction.

6.6 Further transaction details

HTIL's existing partners, who between them hold a 15% interest in Hutch Essar,
will retain their holdings and become partners with Vodafone. Vodafone's interest will be
52% following completion and Vodafone will exercise full operational control over the
business. Essars acceptance to Vodafones offer, these local minority partners between
them will increase their combined interest in Hutch Essar to 26%. In the event that the
Bharti group company exercises its option over Vodafone's 5.6% direct interest in
Bharti, consideration will be received up to 18 months after completion of the Hutch
Essar acquisition.
 Vodafone will continue to hold its 26% interest in Bharti Infotel Private Limited
('BIPL'), which is equivalent to an indirect 4.4% economic interest in Bharti. Vodafone
will now account for its entire interest as an investment. UBS Investment Bank acted as
financial adviser to Vodafone.

6.7 Future Expectations

! ! Avg Mkt Share (%)

Nationwide penetration is currently at 13%, which is expected to exceed 50% in longer

term.

Also the market share of Hutch has spread across quite consistently which has a
20-25% market share.
7. How Vodafone Acquired HUTCH:

7.1 : 20th Dec 2006 : Vodafone decides to go for Hutch:

Vodafone has also emerged as an interested party, along with the Ambanis, the Mittals
of Bharti Airtel, the Ruias, and Maxis for the acquisition of Hutchison's 67-per cent stake
reports CNBC-TV18.Sources indicate that Vodafone wants a larger play in
India.However, it hasn't found it easy to increase its stake in Bharti and therefore,
Vodafone may turn to Hutch. At present, Vodafone holds 10-per cent stake in Bharti. It is
also believed that Essar cannot have the first right of refusal when it comes to a foreign
entity hence Vodafone may not have to go through the rigour of getting Essar's
apporoval.

7.2 : 22nd Dec 2006 : Vodafone Announces Interest in Hutch Essar : Vodafone, the
largest telecom company globally in revenue terms, today formally announced its
interest in acquiring a controlling interest in Hutchison Essar Limited, India's third largest
GSM mobile telecom operator. The Vodafone board had met yesterday in London to
consider a bid and has reportedly authorised CEO Arun Sarin to pursue the deal.

7.3: 28th Dec 2006 : British telecom firm Vodafone has submitted its bid for cellular
services operator Hutchison Essar. The report, quoting sources said to be involved in
the negotiations, says Vodafone's bid puts a value of "at least $17 billion" on Hutchison
Essar. 

Essar Offer : Essar, which holds a third of Hutchison Essar, has offered to buy
Hutchison's 55-per cent stake at a similar price. Verizon and Hinduja’s join the race.

7.4: 8th Jan 2007 : Vodafone appoints Ernst and Young to conduct Due Diligence , while
Essar is busy moving court for its First Right of Refusal.

7.5 : 9th Jan 2007 : Essar joins the race. Essar, which has a 33-per cent stake in Hutch
Essar Ltd (HEL) has three directors on the JV company's board and thus access to all
the operational, infrastructural and financial information about the joint venture, said it
did not need to study the books. Appoints Citibank, Morgan Stanley, Standard
Chartered, Merrill Lynch and Lehman Brothers - for the deal.

7.6 : 9th Feb ‘2007: Deadline set for submitting the Bid.

7.7 : 12th Feb ‘2007 : Finally, Vodafone is all set to establish a major presence in the
world's fastest growing and the most promising telecom market. Vodafone emerged as
the highest bidder for Hutchison Essar in the bidding process, which concluded last
Friday. The telecom major has agreed to acquire the stake held by Hong Kong-based
Hutchison Telecom International (HTIL) and its associates in Hutch-Essar.

The deal was finalised by the HTIL board on Sunday and an agreement has been
signed, bringing the deal close to completion after nearly three months since HTIL
announced its decision to exit Hutch-Essar.

Vodafone would buy out HTIL and its associates, who hold a combined 67- per cent
stake, in Hutch-Essar for $11.1 billion in cash. It would also assume Hutch-Essar's net
debt of $2 billion, taking the enterprise value to $18.8 billion. The final deal size is
smaller than $21 billion – the amount speculated to have been set by HTIL as the
minimum enterprise value. Vodafone expects the acquisition to be earnings accretive
after five years.
7.8 : 16th Feb’2007 : Offer to Essar to sell off its stake in Hutchison-Essar on same
terms it offered Hutchison Telecom.

7.9 : 13th March ‘2007 : DoT clears Vodafone-Hutchison deal 


The communication and IT ministry is believed to have informed the Foreign
Investments Promotion Board (FIPB) that it had no objection to Vodafone's acquisition
of equity in Hutch-Essar and feels. It also says that it is the finance ministry that is better
equipped to look into FDI aspects in the deal.DoT officials say that from their view was
that the deal was FDI compliant

7.10 :13th march 2007: Vodafone Essar deal.


7.11 : 27th April ‘2007 : Maran gives clean chit to Hutch-Vodafone ahead of FIPB
meeting. Communication and IT minister Dayanidhi Maran has given a clean chit to the
Hutch-Vodafone deal, saying there was nothing wrong with the transaction, even as the
foreign investment promotion board is due to meet on April 27 to finalise the licensing
conditions. FIPB is currently looking into the alleged violation in FDI limit in the Hutch-
Vodafone deal, a senior government official said.

7.12 : 4th May’2007 : British telecom giant Vodafone's acquisition of a majority stake in
Hutch-Essar cleared the last hurdle with finance minister P Chidambaram giving his nod
for the deal, hardly a week after the foreign investment promotion board (FIPB) gave its
green signal.

7.13 : 9th May’2007 : Vodafone pays Hutch.


Europe's largest telecom operator, Vodafone Plc, has paid a discounted price of $10.9
billion in cash for mobile firm Hutch-Essar to complete its acquisition of Hutchison
Telecom International Ltd's (HTIL) majority stake that gives it access to the rapidly
growing Indian market to counter saturation in European markets. The final price is a
reduction of $180 million from the originally agreed price of $11.08 billion, which reflects
retention and closing adjustments as agreed with Hutchison. The adjusted price
includes provisions for a previously announced settlement pact with Indian partner
Essar. It also includes $352 million retention by Vodafone toward cost and expenses
associated with the transactions. The net cash inflow to HTIL before payment of the
settlement amount is about $10.83 billion. HTIL is expected to have an estimated pre-
tax gain from the stake sale to be approximately $9 billion. HTIL is expected to declare a
special dividend of $HK6.75 per share following the completion of the transaction.

7.14 : 19th September’2007 : It's a dog's life: Hutch's pug survives, the brand goes

Finally, Hutch is now, officially, Vodafone-Essar. The brand migration from Hutch to
Vodafone was completed on Wednesday, with the pug that endeared the mobile
company to the hearts of its consumer, having survived the re-branding exercise as its
brand ambassador.



The re-branding marks one of the final steps in the completion of the acquisition that
took place in May 2007. In July 2007, the company was renamed Vodafone- Essar.

India is now the 26th country where Vodafone has operations. Vodafone operates
across five continents, with 40 partner networks, serving over 200 million customers
worldwide.

8. Vodafone Essar Deal:

British mobile carrier Vodafone Group PLC and the Essar Group have reached an
agreement to jointly manage mobile phone company Hutch-Essar and rename it
Vodafone Essar. Vodafone chief executive Arun Sarin and Essar vice chairman Ravi
Ruia signed the partnership deal in New Delhi. The two would announce the partnership
at a joint press conference.Under the terms of the partnership agreement, Vodafone
would have operational control of Vodafone Essar and Ruias would have rights, such as
board representation, in accordance with their 33 per cent equity. Ravi Ruia is likely to
be appointed chairman of Vodafone Essar board, while Sarin would be named vice
chairman. Seven of the 12 directors would be Vodafone nominees, while Essar would
have four.

Analjit Singh, who along with Hutch-Essar CEO Asim Ghosh owns a 15-per cent stake,
would also be on the board. Singh had started the company as Hutchison Max, before
selling out to Hutchison Whampoa's HTIL.Vodafone, the world's largest mobile phone
company, last month won a $11.1-billion bid to buy a controlling 67-per cent stake in
Hutchison Essar, a joint venture between Hong Kong-based Hutchison
Telecommunications International Ltd. and the Essar group. 



Vodafone is buying for cash the 52 per cent equity held by Hutchison Telecom and a
combined 15 per cent stake owned by Singh and Ghosh. HTIL's existing Indian partners
Asim Ghosh, Analjit Singh and Infrastructure Development Finance Company Ltd
(IDFC) have agreed to remain minority partners with their collective 15.03 per cent
stake. 

Hutchison Telecommunications International Ltd. said it would pay the Essar group
$373.5 million at the close of the transaction to sell its stake in its Indian joint venture to
Vodafone.

9. Pre Acquisition Scenario

Hutch Essar, India's second largest mobile phone services provider, which
currently has 22.3 million subscribers and Rs. 5,800 crore in revenues ($1.3 billion).
Active bidders included the world's largest mobile telecommunications company
Vodafone, the Anil Ambani-led Reliance Communications and the Hinduja Group.
Verizon Wireless of the U.S. is also in the kicking the tires of a potential deal.

Others in the fray were Japan's NTT DoComo, Egyptian telecom operator Orascom and
other big-name investment banks, including Goldman Sachs, Blackstone and Texas
Pacific. Hutch Essar's valuation has doubled to $20 billion -- the enterprise value that
Hong Kong parent Hutchison Whampoa likes for its 67% stake with partners. The other
33% is owned by the Ruias of the Mumbai-based Essar group, who seem open to
either running the entire company themselves or in partnership with others.At first sight,
it seems obvious why Hutch Essar's valuations climbed so rapidly to such high levels.
India's current high economic growth makes it an attractive market for foreign investors.
Also, it is not every day that one gets to control a big player in a tightly-regulated policy
environment where entry barriers are high.What's more, the country's mobile phone
subscriber base is adding six million new subscribers each month and fast approaching
200 million, or a tenth of the world's subscribers.

At least two theories are floating around as to why Hutchison Whampoa wants to
sell its stake in Hutch Essar. One is that the company badly needs the cash since it has
committed up to $30 billion in investments across Europe. The other is that Li Ka-Shing,
the Hong Kong-based shipping and real estate baron who controls Hutchison, wants to
cash out. He is a fairly astute entrepreneur and, in the past, he has been known to sell
when he thinks valuations have maxed out.

Fresh problems arose over Vodafone's deal to acquire Hutchison-Essar, India's fourth-
largest mobile service provider, from Hong-Kong-based Hutchison Telecom
International, with the Department of Telecommunications raising questions about the
indirect shareholdings by Asim Ghosh and Analjit Singh.

The DoT has said Ghosh and Singh's 12.26 per cent shareholding in Hutchison-Essar
may have to be included as foreign direct investment if it is held by offshore
entities.Thus DoT's views suggest that Hutchison-Essar's shareholding pattern could
violate the FDI cap of 74 per cent for telecom service companies.

The department's view is also in line with that of the Joint Intelligence Committee in the
National Security Council Secretariat, which has said that Hong Kong was a "country of
concern" in terms of national security and the deal needed fresh scrutiny since the
company's former major shareholder was based in Chinese territory.
 In view of the JIC's comment, the DoT has suggested that Vodafone Plc should
be asked to make full disclosures of its projects, joint ventures, branches, business
interests and collaborations in all other countries, to help the process of security vetting
ahead of an FIPB approval.The DoT's objections come soon after the Reserve Bank of
India said that HTIL's deal with Ghosh and Singh violated provisions of the Foreign
Exchange Management Act, a view that has been strongly contested by the two
shareholders. The deal has been referred to the law ministry.The department conveyed
its opinion on March 28 to the Foreign Investment Promotion Board, which is
scrutinising an application of February 23 by UK-based Vodafone, the world's largest
telecom company, to acquire a direct and indirect interest in Hutchison-Essar from HTIL.

HTIL controlled a 52 per cent interest, which was recently bought by Vodafone,
and claimed an indirect interest through Ghosh and Singh's shareholding, taking its
interest to a little over 67 per cent (this includes a 2.7 per cent stake held by IDFC).

Hutch used its credit facilities of $124.5 million and $200 million for arranging two loans
of Rs 489 crore (Rs 4.89 billion) and Rs 792 crore (Rs 7.92 billion), respectively, for
Ghosh and Singh to buy the entire stake of Kotak group.

While Ghosh brought 4.68 per cent, Analjit Singh purchased 7.58 per cent stake.
The RBI will examine whether these loan agreements between HTIL and Ghosh-Singh
duo violated any FEMA or ECB guidelines, and the FIPB would look into whether the
stake purchase by Singh and Ghosh violated FDI cap of 74 per cent in telecom sector,
the official said.
 Complications have arisen because Hutchison-Essar's Indian partner, the Essar
group, has 22 per cent of its 33 per cent stake in the company through overseas
entities.

Therefore, if Ghosh and Singh's shareholding were counted as foreign shareholding, the
total FDI in the company would be 89 per cent.

The DoT's objections follow questions raised last month by the FIPB and the Reserve
Bank of India over the shares held by Ghosh, Hutchison-Essar managing director, and
Singh, promoter of healthcare and insurance conglomerate Max India, on behalf of HTIL
(and now Vodafone) through a complex pattern of offshore companies.

FIPB clears Vodafone-Hutch deal:

After deferring its decision thrice, the Foreign Investment Promotion Board (FIPB) has
finally given a clean chit to the $11.1 billion Vodafone's takeover bid of Hutchison-Essar
paving the way for the British telecom giant to mark its entry to the world's fourth largest
and Asia's second fastest growing mobile market. The approval, April 27, however, has
come with a condition: the minority shareholders in the new venture can only sell their
stakes to Indian residents. 



The decision is expected to have a long-term impact not only in the telecom sector,
which will witness the entry of the world's largest mobile operator, Vodafone, into India,
but also in other sectors where the government has imposed limits on foreign direct
investments, such as insurance. "The approval will help in getting world-class services
into Indian mobile telephony. Vodafone, the world leader in mobile telephony in terms of
quality of service and new-generation technology, will bring them to India," said Analjit
Singh, chairman of the Max group who also owns 7.26 percent in Hutch-Essar, India's
fourth largest mobile company. "It's cleared. We are fully satisfied with the compliance
level. They (Vodafone) have to comply with the new guidelines laid out Press Note 3
pertaining to FDI in the telecom sector. The minority shareholders will have to inform the
government before they sell their stakes," said Ajay Dua, secretary, department of
industrial policy and promotion, after the Friday meeting of the FIPB. 



In February, Vodafone had acquired Hutchison Telecommunications International
Limited's (HTIL) 52 percent holding in the Indian company Hutchison-Essar, in which the
Ruia-controlled Essar group is the junior partner with a 33 percent stake, 22 percent
through a foreign holding firm. Following concerns expressed by some individuals that
the transaction might violate FDI guidelines for the sector, the FIPB decided to examine
the remaining 15 percent stake held in Hutch-Essar by development financial institution
IDFC, Hutch-Essar Managing Director Asim Ghosh, and Max India Chairman Analjit
Singh. 



The FIPB had also sought the opinion of the Reserve Bank of India (RBI) and the Law
Ministry on the issue of the complex shareholding pattern of Hutch-Essar and also
sought clarifications about the options enjoyed by HTIL on the minority shareholdings. 

On Friday, FIPB announced that share holding of Asim Ghosh and Analjit Singh is
Indian and that they cannot sell their existing shares to any foreign entity without
government approval. 



According to a government aide, the FIPB was of the opinion that 15 percent of the total
holding in Hutch should remain with the Indians. A government aide said that the FIPB
is satisfied with Vodafone's holding in the joint venture with Essar, which is at only 52
percent. 



The government aide further said that the Vodafone-Essar deal would be sent for the
Finance Minister's approval. Further, the FIPB has asked the government to review the
FDI norms across sectors. 

Indian rules allow foreign ownership of up to 74 percent in a domestic telecom firm. 

Reacting to the FIPB's decision, Asim Ghosh said that he was delighted with the FIPB's
decision, but was awaiting written clearance of the same. He went on to say that he
never doubted whether the shareholding in the company was his. 

Analjit Singh also said that he was relieved and delighted, but would like to see the
decision in black and white before celebrating. He added that he was comfortable with
the government's condition not to sell 15 percent stake to foreign companies. 



"It looks as though the panel has recommended approval for our application to the
finance minister and that is clearly welcome," said a Vodafone spokesman. 

"However we understand that it is for the finance minister to approve FDI (foreign direct
investment approvals) and we will await his decision," he told AFP. 

Officials close to the deal said Finance Minister P. Chidambaram's approval was
considered a formality. Vodafone plans to swap the Hutch brand in India with its own in
due course, and aims to accelerate capital expenditure, promote low-cost handsets and
introduce new services suited to India such as money transfers over mobile phones. 



According to market analysts, the takeover deal was central to Vodafone's strategy of
seeking new markets away from saturated developed countries. The British firm also
owns a 10 percent stake in Hutch rival Bharti, but plans to sell 5.6 percent back to Bharti
in a parallel deal to the Hutchison Essar transaction. The group will continue to own a
4.4 percent stake in an unlisted Bharti holding company. 



It was earlier decided that Essar's vice chairman Ravi Ruia will be chairman of the new
joint venture, while Vodafone's India-born chief executive Arun Sarin will be appointed
vice-chairman. Vodafone said it would invest $2 billion within two years in the Hutch-
Essar mobile telecom venture to tap rural market, expand infrastructure and improve
tele-density. 

10. Present Scenario :

Vodafone Essar moves behind Bharti Airtel, pushes BSNL to third spot

Bharat Sanchar Nigam Ltd (BSNL), the country's top telecom PSU, has been pushed to
No 3 slot in the global systems for mobile communications (GSM) subscriber base with
Vodafone Essar taking the second spot behind top telco Bharti Airtel.

While BSNL added only 1.55 million subscribers from the end of March to the end of
July 2007, market leader Bharti has grown by 7.6 million and Vodafone Essar (earlier
Hutch) by 6 million, according to the Cellular Operators Association of India (COAI).

Idea Cellular and Aircel have added 2.99 million and 1.65 million users, respectively.
Bharti's GSM market share has grown to 31.58 per cent in July-end from 30.59 per cent
in March-end.Vodafone has grown to 22.88 per cent from the 21.78 per cent earlier;
BSNL to 22.59 per cent from 20.44 per cent; Idea to 12 per cent from 11.54 per cent;
Aircel to 5.05 per cent from 4.54 per cent; and Spice to 2.32 per cent from 2.25 per
cent.

The market share of Mahanagar Telephone Nigam Ltd (MTNL) and BPL Mumbai have
dropped from 2.26 per cent to 1.88 per cent and 0.88 per cent to 0.77 per cent,
respectively.While BSNL operates in 21 out of the 23 circles in the country, Bharti
operates in all 23 circles and Vodafone in 16. Idea is present only in 11 and Aircel in
nine.

BSNL was unable to add capacity for the past few months as its mega GSM tender got
delayed. BSNL, however, recorded the second-highest month-on-month growth rate,
after Aircel, in March, at 7.8 per cent. But, thereafter, the PSU slipped to the seventh
position and has been there ever since. There are 141.74 million GSM subscribers in
the country as of July end, up from 121.43 million at end-March.
Vodafone to pay tax on Hutch Deal:

Contesting Vodafone's view that it had no obligation to pay tax on its deal to buy stake
in Hutch-Essar, a senior government official today said the British firm was responsible
to submit tax to the government.

"Vodafone is payer in this case. So, it has a liability of payer," G C Srivastava, Director
General (International Tax) in the Ministry of Finance, told reporters on the sidelines of
an Assocham seminar here. Liability of payer and payee is different. Vodafone has a
liability of payer, Srivastava said, indicating that Vodafone should have deducted tax at
source before making payment to Hutchison and deposited it in the kitty of the
government. The Income Tax deparment has sent a notice to Vodafone, seeking around
1.7 billion dollars in capital gains tax related to the sale of Hutchison Telecom
International Ltd's 67 per cent stake in Hutch-Essar, now renamed Vodafone-Essar.

However, the company has contested this notice and approached the Bombay High
Court. Last week, Vodafone CEO Arun Sarin, who is also Vice-Chairman of Vodafone-
Essar, had said the company was not liable to pay tax.

"We are working with the Income Tax Department to sort this issue. Neither the Essar
Group, nor Vodafone, nor Vodafone Essar is liable to pay taxes. It is the seller
whoshould be taxed; and the seller is not one of the parties represented here," Sarin
had said.

In May, Vodafone Group Plc had paid 11.2 billion dollars to HTIL for acquiring controlling
stake in Hutchison Essar.
How will India Benefit Vodafone’s entry

12. 1 Only operator in India integrated into an international mobile company

– International voice and data roaming

– Unique offers for multinational corporate accounts

▪ Access to proven product portfolio

▪ Mobile office expertise

12.2 Senior Management

Team that built the business

– Highly experienced and customer focused management team

– Good cultural fit
– Strong challenger mentality
– Proven expertise in integrating and working with local management teams
– Proven best practice and benchmarking to accelerate change
– Potential for specific skills injection e.g. CRM/Data

12.3 Customer service

Recognised industry leader

Comprehensive approach across call centres, retail, internet, and automated

systems

Industry leading process improvement based on extensive customer research