i did a bit of research with my colleague for a report titled “Merger and Acquisition Report – Introspection of a Success Story”, as part of his project report. As part of this study we did some research on vodafone-hutch deal. Most of the stuff we got from net, added some of our analysis information. I am going to share this information in different parts
In an increasingly open global economy, where old prejudices against foreign ‘predators’ and old fears of economic colonization have been replaced by a hunger for capital, Mergers and Acquisitions (M&A) are welcome everywhere.
In human aspects of M&As we used a not-too-original distinction between mergers, acquisitions and joint ventures. M&As represented a ‘marriage’, while joint ventures meant ‘cohabiting’. Although mergers and acquisitions are generally treated as if they are one and the same thing, they are legally different transactions. In an acquisition, one company buys sufficient numbers of shares as to gain control of the other—the acquired company. Acquisitions may be welcomed by the acquired company or they may be vigorously contested.
There are several alternative methods of consolidation with each method having its own strengths and weaknesses, depending on the given situation. However, the most commonly adopted method of consolidation by firms has been through M&As. Though both mergers and acquisitions lead to two formerly independent firms becoming a commonly controlled entity, there are subtle differences between the two. While acquisition refers to acquiring control of one corporation by another, merger is a particular type of acquisition that results in a combination of both the assets and liabilities of acquired and acquiring firms. In a merger, only one organization survives and the other goes out of existence. There are also ways to acquire a firm other than a merger such as stock acquisition or asset acquisition
The Vodafone-Hutch deal is one of the largest M&A deal executed by overseas firm in Indian subcontinent. Today Vodafone business in India has been successfully integrated into the group and now has over 44 million customers, with over 50 per cent pro forma revenue growth. Revenues increased by 50 per cent during the year driven by rapid expansion of the customer base with an average of 1.5 million net additions per month since acquisition
In today’s volatile market, where major M&A deals are showing negative growth or companies are looking for Government Bailout money, Vodafone acquisition of hutch is a major contributor to its revenue .While India’s revenues grew by 29.6 percent other APAC countries posted far lower growths at 10 percent in Egypt, 7 percent in Australia and 3 percent in New Zealand at constant exchange rates.
This Report covers the various aspects of M&A along with insights on Vodafone Merger
According to global deal tracking firm Dealogic, the global merger and acquisition sphere witnessed 42 per cent decline in its value reaching $482 billion so far this year. Another factor that will tend to dampen any rapid rebound in M&A will be the gradual consolidation that has already taken place in many sectors, particularly in the more developed economies, resulting in fewer opportunities for large-scale mergers. So even though the number of acquisitions may resume their climb after the current downturn, the scale of these may become smaller as rationalization within industries progresses.
Also companies are collaborating with each other to reduce cost. For instance all the major Indian telecom players are sharing their towers. There is also a plan to share the ATMS of different banks.
In the backdrop all this, the question arises what is the future of M&A
Need for Study
In today’s global economic scenario companies are finding it difficult to survive either because their order books have dried out or they not getting enough capital to expand. In spite of all these there are lot of mid-sized firms which are showing positive results despite the fact that the larger players in the same business have filed for bankruptcy.
In such scenarios how can M&A be successful? Despite various question there is IBM-Sun deal which is being talked about, Tata-Jaguar deal which is looking for government bailout, Satyam waiting for a new boss.
M&A is a topic with wide scope. This report tries to given M&A overview by aligning with the Vodafone-Hutch deal
Objectives & Scope
This report talks about M&A current and future with a general analysis of Vodafone and Hutch Merger. This report analyzes the Q3 2008 report of Vodafone and how India contributes to this revenue.
Briefly the analysis can be divided into three major phases as below
- Exploratory Phase – why Hutch is important for Vodafone India strategy
- Due Diligence and Negotiations Phase – In ‘Data Analysis and preparation’ we analyze the highlights of the Vodafone hutch transaction
- Post-Close Integration Phase – We discuss about how hutch has helped Vodafone in showing better profit margins
Vodafone is a mobile network operator with its headquarters in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £75 billion (August 2008). Vodafone currently has operations in 25 countries and partner networks in a further 42 countries. The name Vodafone comes from Voice data fone, chosen by the company to “reflect the provision of voice and data services over mobile phones.
Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Indian nationals, 15%. On February 11, 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on May 8, 2007.
As of Nov 2008 Vodafone Essar has 58764164 or 23.57% of total 249349436 GSM mobile connections in India. Vodafone India’s share in the mobile phone operator market rose to 18 percent.
Hutch Essar was a leading Indian telecommunications mobile operator with 23.3 million customers at 31 December 2006, representing a 16.4% national market share. Hutch Essar operates in 16 circles and has licences in an additional six circles. In the year to 31 December 2005, Hutch Essar reported revenue of US$1,282 million, EBITDA of US$415 million, and operating profit of US$313 million. In the six months to 30 June 2006, Hutch Essar reported revenue of US$908 million, EBITDA of US$297 million, and operating profit of US$226 million.
Up until January 2006, Hutch Essar had licences in 13 circles, of which nine have 900 MHz spectrum. In January 2006, Hutch Essar acquired BPL, thereby adding three circles, each operating with 900 MHz spectrum. In October 2006, Hutch Essar acquired Spacetel, adding six further licences, with operations planned to be launched during 2007
The challenges that Vodafone will face in the 2009 along with analysis of latest balance sheet of Vodafone