The Hutchison Essar Aquisition

By:
Moumita Hazra
Manisha Sarawagi
Gourav das
Indu Raitani
Kumar Dibyesh
 OBJECTIVES OF (MERGER AND
ACQUISITIONS)
• SYNERGIES
• INCREASED REVENUE/ MARKET SHARE
• CROSS SELLING
• ECONOMIES OF SCALE
• TAXES
• OTHER DIVERSIFICATIONS
• REVENUE TRANSFER
 Reasons for Hutch willing to
Sell….

• Wanted to aid in creating value in emerging

mobile markets
• Identified its limited scope in India
• Suffered loss of HK$768 million in 2005
• Business practice of making and selling
• GOI blocked its plan to invest in Indian Ports
• Reduction in ARPU
 Vodafone’s Interest in Hutchison
Essar……
• India’s telecom sector was the fastest growing: CAGR
22% (06-07), expected 40% in 2012
• Second largest telecom market
• Goes with its stated strategy of seeking selective
acquisition opportunities in developing markets.
• hutch was willing to sell itself
• had licences in almost all lucrative telecom circles
including several metros
• limited presence in Asia
 Road blocks………
• Other Contenders – Reliance, Essar, Bharti Airtel
• clearing too many regulatory issues
- clear stake of Bharti Airtel (74% FDI, not
more allowed) i.e., to return some share of bharti
airtel as if it buys 67% of HTL then it will exceed
the FDI limit.
- Essar’s argument.
• late clearance from regulatory authorities
• 3G policy pending
 With regards to valuation
Research Says
• We would peg the Hutch-Essar value at close to $17 billion, with a $11-12 billion
price for the 67% stake
-The Smart Cube
• Valuations of $20 billion for Hutch-Essar are expensive
-Lehman Brothers
• Vodafone seems to be offering a large premium...
-CLSA Asia Pacific Markets
• We believe that the deal is likely to value Hutchison Essar's equity at $14-15
billion
-Man Financial
• Using our local analysts' SOTP valuation of $15.5 billion for Hutchison Essar's
enterprise value and deducting $1.1 billion of net debt for end 2007 leaves an
equity value for the theoretical maximum 74% of $10.8 billion
-Goldman Sachs
 BUT…
• Hutchison Essar was valued at US$18.8 billion where in
vodafone wanted to acquire 67% stake valued at US$ 11.1billion.
• Hutchison Essar debt 1.33billion
• Equity value 17.47billion.
Sources of finance
• Least leveraged of all bidders
• $5 billion from sale of its japanese unit
• $1.62 cash from 5.6 %stake sale in Bharti airtel
• Cash reserves over US$ 3 billion
• Sale of 25% stake in Swisscom Mobile & exited Belgium.
 COST – BENEFIT ANALYSIS
COST –US$11.1 BILLION(DISCOUNTED US$10.9
BILLION,RS.35,000/USER)
BENEFITS
•LESS REGULATORY OBLIGATIONS(DEREGULATION IS
SUB-OPTIMAL)
•A READY MARKET(INFRASTRUCTURE,SUSCRIBERS)
•BENEFITS OF NEW TECHNOLOGY(3G)
•OPPORTUNITIES FOR HORIZONTAL
INTEGRATION(BHARTI INFRATEL)
DETERMINING FACTORS
•INFRASTRUCTURE
•SCALE
•ARPU
 Learning……
• Why Vodafone succeeded?
- coordination with their corporate
strategy.
- wanted to enter the rural market after
saturating the foreign markets
- had the motive of launching the 3G
service prior to the other competitors