merger vodafone & hutch - anita
TRANSCRIPT
Company LOGO
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Merger & AcquisitionMerger & Acquisition
Vodafone&
Hutchison Telecom
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Presented ByPresented By
Name Roll No.
Hubert D’Sa
Ashwin Shetty
K. Kalyanraman
Anitha Shinde 25
Vodafone&
Hutchison Telecom
Merger & Acquisition
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• In business or economics a merger is a combination of two companies into one larger company.
• Such actions are commonly voluntary and involve stock swap or cash payment to the target.
Merger & Acquisition
MergerMerger
AcquisitionAcquisition
• An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another.
• An acquisition may be friendly or hostile
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• Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.
• Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.
• Market-extension merger - Market-extension merger - Two companies that sell the same products in different markets.
Merger & Acquisition
Types of M & ATypes of M & A
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• Synergies: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations.
• Increased revenue/Increased Market Share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power.
• Cross selling: A manufacturer can acquire and sell complementary products.
• Economies of Scale: For example, managerial economies such as the increased opportunity of managerial specialization.
Merger & Acquisition
Motive Behind M & AMotive Behind M & A
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• Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability.
• Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company.
• Resource transfer: Resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources
Merger & Acquisition
Motive Behind M & AMotive Behind M & A
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• Gain market share
• Economies of scale
• Enter new markets
• Acquire technology
• Utilization of surplus funds
• Managerial Effectiveness
• Strategic Objective
• Vertical integration
Merger & Acquisition
Need of Merger & AcquisitionsNeed of Merger & Acquisitions
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• Finalize strategy & Due diligence
• Valuation / Negotiations
• Board meeting / Application to High court
• Notices and General body meeting
• Approval by court
Merger & Acquisition
Structuring an M & AStructuring an M & A
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Merger & Acquisition
2007- 08 Global TOP 5 M&A Deals2007- 08 Global TOP 5 M&A Deals
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Vodafone
purchased stake in
Hutch(Hutchison Telecom International)
for
USD 11.08 billion
Merger & Acquisition
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Founded : 1983 as Racal Telecom, independent 1991Group : Vodafone PlcHeadquarters : Berkshire, UKKey People : Vittorio Colao, CEO & Sir John Bond, ChairmanIndustry : Mobile Telecommunications.Presence : Equity Interest in 25 Countries & Network
Partner in 42Strength : 2,30,000 (Employees)Revenue : £ 35,478 Million(14.1% Growth)Net Income : £ 10,047 Million(10.1% Growth)EPS : 7.51 Pence Dividend Per Share(11.1% Growth)
Merger & Acquisition
Background – Vodafone (Voice Data Fone)Background – Vodafone (Voice Data Fone)
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Operations : 1992
Circles : 16 + license for 6 circles
Revenue : $ 1,282 Million
EBITDA : $ 415 Million
Operating Profit : $ 313 Million
Subscriber Base : 29.2 Million
ARPU : Rs. 340.15
Merger & Acquisition
Background – Hutch - EssarBackground – Hutch - Essar
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• 1992: Hutchison Whampoa and Max Group established Hutchison Max
• 2000: Acquisition of Delhi operations Entered Calcutta and Gujarat markets through ESSAR acquisition
• 2001: Won auction for licenses to operate GSM services in Karnataka, Andhra Pradesh and Chennai.
• 2003: Acquired AirCel Digilink (ADIL - Essar Subsidiary) which operated in Rajasthan, Uttar Pradesh East and Haryana telecom circles and renamed it under Hutch brand
Merger & Acquisition
Growth of Hutchison EssarGrowth of Hutchison Essar
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• 2004: Launched in three additional telecom circles of India namely Punjab, Uttar Pradesh and West Bengal.
• 2005: Acquired BPL, another mobile service provider in India 2007: Vodafone acquired HTIL stake in Hutchison-Essar
• 2008: Vodafone acquired Dishnet Wireless, a service provider in Orissa and has successfully launched its services in the following circle.
• 2008: Vodafone launched the Apple iPhone 3G to be used on its 17 circle 2G network.
Merger & Acquisition
Growth of Hutchison EssarGrowth of Hutchison Essar
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- Urban markets in the country had become saturated.
- Future expansion would have had to be only in the rural areas, which would lead to falling average revenue per user (ARPU) and consequently lower returns on its investments
• HTIL also wanted to use the money earned through this deal to fund its businesses in Europe
• The sale of its interests in India will enable Hutchison Telecom to become one of Asia’s best capitalized companies
• Relations between Hutchison Telecom and the Essar group of India will be key to the sale of Hutch's 67% stake in Hutch-Essar
Merger & Acquisition
Reasons for Hutchison’s ExitReasons for Hutchison’s Exit
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• None of its recent global acquisitions, including those of the German business of Mannesmann, telecom businesses in Japan and Belgium, were performing up to the mark
• Markets, including the US, were maturing and were not growing in a big way
• Stiff competition among almost all major players in the industry, including global telecom majors like BT,O2 of UK, Verizon from the US, Maxis Telecommunications of Malaysia, Orascom from Egypt, the Hinduja group, Reliance and Bharti Airtel from India
Merger & Acquisition
Why & How the deal came through…Why & How the deal came through…
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Deal size and stakeDeal size and stake
Fourth largest deal of the year 2007 (to date) at $13.3 bn ($11.1 bn plus $2 bn debt). Hutchison Essar valued at $18.8 bn.
Regulatory Approvals Regulatory Approvals
Vodafone acquisition is subject to a number of approvals including from the Department of Telecommunications and the Government (FIPB).
Foreign Direct Investment Policy
Foreign Direct Investment Policy
Press Note 5 of 2005 provides that direct and indirect foreign shareholding in a telecom company cannot exceed 74%.
Department of TelecomDepartment of Telecom
The Department of Telecommunication has given its nod All licensing conditions to be met by Vodafone.
Foreign Investment Promotion Board
Foreign Investment Promotion Board
Application for an approval from the FIPB still not been approved due to issues relating to the total direct and indirect foreign holding in Hutchison Essar.
Merger & Acquisition
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• Accelerates Vodafone’s move to a controlling position in a leading operator in the attractive and fast growing Indian mobile market
• India is the world’s 2nd most populated country with over 1.1 billion inhabitants
• India is the fastest growing major mobile market in the world, with around 6.5 million monthly net adds in the last quarter
• India benefits from strong economic fundamentals with expected real GDP growth in high single digits
• Increases Vodafone’s presence in higher growth emerging markets
Merger & Acquisition
Principal Benefits for VodafonePrincipal Benefits for Vodafone
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• Potential for Hutch Essar to bring Vodafone’s innovative products and services to the Indian market, including Vodafone’s focus on total communication solutions for customers
• Vodafone and Hutch Essar both expected to benefit from increased purchasing power and the sharing of best practices
Merger & Acquisition
Principal Benefits for Vodafone … ContPrincipal Benefits for Vodafone … Cont
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"The announcement is a clear evidence of how we are executing our strategy of developing our presence in the emerging markets. Hutch Essar is an impressive, well-run company that will fit well into the Vodafone Group
-Arun Sarin, CEO, Vodafone Ltd., in February 2007
"We exit the Indian market as one of the best capitalized telecom companies in the region which will enable us to react swiftly to new opportunities and to accelerate growth in our existing markets.
-Canning Fok, Chairman, HTIL, in May 2007
Merger & Acquisition
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• HTIL financed the loan to minority shareholders Asim Ghosh & Analjith Singh for 15 % stake in Hutch-Essar
• The loan is a violation of External Commercial Borrowings (ECB) norms issued under FEMA. This is because the multi-layered transaction (for Ghosh and Singh's stake) has been funded by a local finance company, backed by a stand-by letter of credit issued by a Hong Kong entity at the instance of HTIL
• Since both the shareholders are fronting for HTIL, the 15 % minority shareholding is interpreted as foreign stake.
Merger & Acquisition
Foreign Exchange and Management Act (FEMA)Foreign Exchange and Management Act (FEMA)
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• Finance Bill 2008 also proposes to ensure that capital gains tax should be levied on acquisitions in India.
• Buyer will be responsible for paying the tax after purchasing any capital asset - a share or debenture of a company in India.
• The buyer will have to deduct TDS and failure to do so would leave him liable to pay the tax. The tax will have to be paid with a retrospective effect from June 2002.
• Department sent a notice to Vodafone, asking for about $1.7 billion as capital gains tax in the sale of 52% stake in Hutchison Essar to Vodafone
• It argues that the company should have deducted tax at source while making payment to HTIL
Merger & Acquisition
TaxationTaxation
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