INDIA BUSINESS WORLD - APRIL - MAY 2007
The Month that was ...

VODAFONE WINDS UP HUTCH-ESSAR DEAL BY PAYING $180 MILLION LESS

BRITISH telecom giant Vodafone has paid a discounted price of $10.9 billion in an all-cash deal to buy Hutchison Essar, India's fourth largest operator, gaining a foothold in the world's fastest growing telecom market.

The Newbury, England-based Vodafone has paid $180 million less than the original price of $11.08 billion for a controlling stake in Hutch. The discount reflects the retention and closing adjustments agreed between Vodafone and HTIL, Vodafone said in a statement.

In February, Vodafone had announced its intention to buy Hutchison Telecommunications International's (HTIL) 67% stake in Hutch. Subsequently, HTIL offered $415 million to the Ruias, who have 33% stake in Hutch, as 'sign-on bonus' in return for their cooperation in completing the deal.

"I am delighted that, having secured all the necessary regulatory approvals, we are now able to complete this important transaction and move onto the process of integration. India is a tremendously exciting, fast-moving market and I am confident that the Hutch Essar business will make a major contribution to the Vodafone Group over the coming years," Vodafone CEO Arun Sarin said.

Hong Kong-based HTIL said it has "completed the transaction with Vodafone on May 8, 2007". The estimated pre-tax gain to HTIL from the sale to Vodafone is around $9 billion following adjustments towards the settlement with the Essar Group, a retention of $352 million by Vodafone in consideration for their waiving of certain potential claims against the company, the receipt of interest from Vodafone and transaction costs and expenses," HTIL said in a statement.

The net cash inflow to Hutchison Telecom before payment of the settlement is $10.83 billion. The HTIL board is likely to declare a special dividend of around $12.94 per share.

HTIL chairman Canning Fok said, "We exit the Indian market as one of the best capitalised telecom companies in the region which will enable us to react swiftly to new opportunities and to accelerate growth in our existing markets."

Essar group vice-chairman Ravi Ruia said, "We welcome Vodafone as our new partner and together we expect to bring to Indian consumers an entirely new experience in mobile telephony. We look forward to building, together with Vodafone, the most valuable telecom company in India."

This marks the end of one of the most controversial M&As in the India. The deal was also one of the largest ever buyouts in Asia. The shareholding structure of Hutch was under the lens of Foreign Investment Promotion Board (FIPB), RBI, the law ministry besides the Department of Telecom for over two months to check compliance with foreign investment guidelines, which cap FDI in the sector at 74%.

The delayed but now-confirmed entry of Vodafone is set to heat up the competition in India, which is adding over 6 million cellular subscribers every month. Mr. Sarin has already announced that he's eyeing a market share of 25% over the next five years. To achieve the target, Vodafone will bring in low-cost entry-level handsets besides offering a host of value added services.

According to analysts, the company's infrastructure sharing agreement with Bharti Airtel will save capex for Vodafone and reduce its operational costs as well.