INTRODUCTION IN THE MONTH OF MAY 2007 GLOBAL MOBILE GIANT VODAFONE VENTURED INTO THE INDIAN TELECOM INDUSTRY BY BUYING OUT 67% STAKE IN HUTCHISON ESSAR.THE DEAL WAS WORTH $11.1 BILLION AND WAS THE BIGGESTFDI IN INDIAN TELECOM INDUSTRY EVER. IN THE MONTH OF SEPTEMBER THE INCOME TAX DEPARTMENT SENT A SHOW CAUSE NOTICE TO VODAFONE ESSAR FORMERLY HUTCHISON ESSAR ASKING THEM TO PAY $2 BILLION AS CAPITAL GAIN TAX.
THE NAME VODAFONE COMES FROM VOICE DATA FONE
HEADQUARTERED IN BERKSHIRE ENGLAND, UK.
VODAFONE FOUNDED 1983 AS RACAL TELECOM,
LARGEST MOBILE TELECOMMUNICATIONS NETWORK
COMPANY IN THE WORLD BY TURNOVER
VODAFONE MARKET VALUE OF ABOUT £75 BILLION
VODAFONE CURRENTLY HAS EQUITY INTERESTS IN 25
COUNTRIES AND PARTNER NETWORKS IN A FURTHER 42
AT 31 MARCH 2008 VODAFONE HAD 260 MILLION PROPORTIONATE CUSTOMERS IN 25 MARKETS ACROSS 5 CONTINENTS. ON THIS MEASURE IT IS THE SECOND LARGEST MOBILE TELECOM GROUP IN THE WORLD BEHIND CHINA MOBILE. VODAFONE ARE THE SPONSERS OF ENGLISH CRICKET TEAM , ROMANIA NATIONAL FOOTBALL TEAM. CONTD…..
VODAFONE ESSAR VODAFONE ESSAR , PREVIOUSELY HUTCHISON ESSAR IS A CELLULAR OPERATOR IN INDIA THAT COVERS 16 TELECOM CIRCLES IN INDIA. IT OFFERS BOTH PREPAID AND POST PAID GSM CELLULAR PHONE COVERAGE .DESPTE THE OFFCIAL NAME BEING VODAFONE ESSAR, ITS PRODUCTS ARE SIMPLY BRANDED VODAFONE. VODAFONE ESSAR IS OWNED BY VODAFONE 52%,ESSAR GROUP 33% AND OTHER INDIAN NATIONALS 15%.THE TRANSACTION TAKEN PLACE ON 8th MAY 2007.AND VODAFONE ESSAR IS THE FOURTH LARGEST WIRELESS OPERATOR IN INDIA.
HWL started mobile business in 1983 in our home market of Hong Kong and now
serves approximately 28 million customers.
Is a leading global mobile service and data services provider operating with a
high growth strategy in 14 countries
It is a dynamic and agile player with a strong track record as:
The first to market with an international 3G video mobile network under the
“ 3” brand;
One of the most agile and profitable 2G mobile voice and data network operators
As a major owner and operator of the fibre optic broadband and fixed-line
networks in Hong Kong, serving as a telecoms gateway to China.
HUTCHISON TELECOMMUNICATION INTERNATIONAL LTD
Hutchison Whampoa owns direct majority interests in all 3-networks, except
3 Hong Kong and 3 Indonesia.
These networks are majority-owned by the publicly listed Hutchison
telecommunications International Limited (HTIL), in which Hutchison Whampoa has a
50.003 percent majority interest.
HUTCHISON listed on the Hong Kong and New York stock exchanges in October
Hutchison Telecom is a market leader, in eight dynamic markets.
HUTCHISON WAS WAS THE FIRST FOREIGN COMPANY TO GET OWNERSHIP IN
AN INDIAN TELECOM SERVICE COMPANY
HUTCHISON TELECOMMUNICATION INTERNATIONAL LIMITED(HTIL)
WAS THE MAJOR STAKE HOLDER IN THIS CONCERN WITH A STAKE OF
42% .ESSAR HAD 26% AND OTHER INSTITUTIONAL INVESTORS HOLDED 30%.
Increase in sales/revenues
Venture into new businesses and markets
Profitability of target company
Decrease competition(from the perspective of the acquiring company)
Enlarge brand portfolio.
What brought them to merger
VODAFONE TAKEOVER Vodafone(Briton) A Foreign company Takes over HTIL( Whampoa group of Li-Ka Shing. Hong Kong A foreign company Hutchison Essor Indian Company Essor group Asim Ghosh-12% A.Singh and other companies (Minority) 67%
INCOME TAX DEPARTMENT IMPOSED $2 BILLION CAPITAL GAIN ON
ON MAY 16 ,2008 PARLIAMENT PASSED AN AMMENDMENT TO ALLOW
THE GOVT. TO TAKE ACTION AGAINST COMPANIES WHICH DO NOT
WITHHOLD TAXES.THE AMMENDMENT WAS MADE TO SEC.191,201.
THE AMMENDEMENT ALLOWES I.T DEPARTMENT TO COLLECT
CAPITALGAIN TAX RETROSPECTIVELY.
IN A RESPONSE TO I.T DEPARTMENT MOVE VODAFONE CHALLENGED
THE AMMENDEMENT OF IT ACT SEC 191 AND 201 WITH
VODAFONE CHALLENGED SECTION 195 I.T.ACT IN MUMBAI
HIGH COURT AS THE OUTSIDE TRANSACTION.
THE DEPARTMENT IS SEEKING CAPITAL GAIN TAX OF $2 BILLION AS
WELL AS 18% INTEREST ON IT AS PENALTY FOR NOT WITHHOLDING
TAX, TAKING THE TOTAL CLAIM NEARLY TO $2.5 BILLION.
CASE ( CONTD…)
VODAFONE ARGUED THAT SUCH A TAX IMPOSITION
WAS OUTSIDE THE JURISDICTION OF MINISTERY OF
FINANCE AS TWO COMPANIES WERE NOT BASED IN INDIA
IF VODAFONE FAILS THE CASE ,WILL HAVE TO FACE A TAX
BILL OF $4BILLION WHICH IS DOUBLE THE AMOUNT
INCOME FROM CAPITAL GAIN TRANSFER OF CAPITAL ASSETS RESULTS IN CAPITAL GAINS. A CAPITAL ASSET IS DEFINED UNDER SECTION 2(14) OF I.T ACT 1961,AS PROPERTY OF ANY KIND BY AN ASSESSE SUCH AS REAL ESTATE,EQUITY SHARES,JWELLERY,PAINTING, ART etc.BUT NOT INCLUDED SOME ITEMS LIKE STOCK IN TRADE FOR BUSINESS AND PERSONAL EFFECTS.
Exceptions - income tax act
THE AMALGAMATED COMPANY IS AN INDIAN COMPANY
IF SHARES OF INDIAN CO.HELD BY FOREIGN BEFORE
MERGER AND SUCH FOREIGN CO. TAKEN OVER BY
ANOTHER FOREIGN CO.
ATLEAST 25% OF THE FOREIGN CO. (BEFORE MERGER)
TO BE SHARE HOLDERS OF THE NEW FOREIGN CO.
Conclusion India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent.As the case is pending in the HIGH COURT OF MUMBAI, we cannot draw a clear conclusion to this case