Vodafone acquired a 67% stake in Hutch-Essar (now Vodafone Essar) for $11.1 billion in 2007 to gain access to the fast-growing Indian mobile market. Hutchison wanted to exit due to market saturation in urban areas, while future growth would be in lower revenue rural markets. Vodafone saw the acquisition as an opportunity to expand its market share in India, the world's fourth largest mobile operator at the time with over 24 million subscribers. The deal financing came from Vodafone's sale of other assets and cash reserves, allowing it to capitalize on India's expected growth to 500 million subscribers by 2010 and the potential for 3G services.

1. CASE STUDY ANALYSIS
OF MERGER –ACQUISITION
By
ANIL LEO

2. MERGER AND ACQUISITION OF
HUTCH-ESSAR BY
VODAFONE

3. Why did Hutch wanted to exit ?
• 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 investment.
• HTIL also wanted to use the money earned through this deal to fund it's
business in Europe.
• The sale of the its interest in India will enable HTIL to become one of the
Asia's best capitalized company.

4. Why Everyone Wants Hutch
• It the fastest-growing cellular market in the world.
• Fourth largest mobile operator in India with 24.41 million
subscribers.
• Present in 16 of 23 circles. Has license for six others barring
Madhya Pradesh.
• Revenues of $908 million (Rs 4,086 crore) in H1 2006
against $1.29 billion (Rs 5,800 crore) in 2005.
• Operating profits of Rs 1,017 crore, EBITDA margins at
32.7 per cent in H1 2006

5. Why Vodafone wants to acquire Hutch-Essar?
• Vodafone is the 3rd largest telecom industry in terms of revenue and
ARPUs in world, but it does not have any control over Indian market.
• Hutch was top industry in India in terms of ARPUs and also revenues.
So to control Vodafone acquired 67% of Hutch-Essar and renamed as
Vodafone Essar. But products are branded in name of Vodafone.
• By this Vodafone can expand its market share and can have big growth
in industry.

6. Merger Details
• The partners have agreed that Hutchison Essar will be renamed
Vodafone Essar
• On February 11, 2007, Vodafone agreed to acquire the
controlling interest of 67% in Hutch-Essar for US$11.1 billion
• Deal size and stake Fourth largest deal of the year 2007
at $13.3bn ($11.1bn plus $2bn debt).
• Hutchison Essar valued at $18.8bn.
• The sale of its interests in India will enable Hutchison Telecom
to become one of Asia’s best capitalized companies.

7. Financing the Deal
• Vodafone has $5 billion from the sale of its Japanese unit for $15 billion
last year (the remaining $10 billion is expected to go back
to shareholders).
• It will also get $1.62 billion cash from its 5.6 per cent stake sale in Bharti.
• In addition, Vodafone has free cash reserves (for the first six months of
2006) in excess of $3 billion.
• It has also sold its 25 per cent stake in Swisscom Mobile and exited
Belgium

8. Synergies claimed
• Vodafone gets access to the fastest growing mobile phone market in the
world that is expected to touch 500 million subscribers by 2010.
• Cellular penetration in rural India is below 2%, but 67% of India's
population lives in rural India.
• 3G is set to take off in India, allowing data and video to ride on
cellular networks.