3. Vodafone’s Foray Into India
• Vodafone was looking to enter Indian market. But FDI
Policies Were not Favorable
• On Feb 11, 2007 a Vodafone Group Plc an UK Based
Telecom Company Acquired Hutchison Essar LTD (HEL).
• Vodafone Bought A 52% Stake for US$ 11.1billion from
Hutchison Telecom International.
• Hutchison Essar Was Valued at US$ 19.3 Billion.
• There Were Several Competitors like Reliance
Communication, Essar and Hinduja Group.
• The Biggest Deal Ever in the Indian telecom industry.
4. Cont..
• HEL had an 29.2million Subscriber base in july 2007
and had an PAN INDIA Presence in 13 of total 28
circles in the country.
• Also had highest ARPU of Rs.340.15.
• The Final Deal Price was a discounted amount of US$
10.9 billion.
• The Acquisition realized Vodafone’s desire to enter
emerging markets in a big was as a counter to the
markets developed countries that were saturated.
5. Background -Vodafone
• Vodafone was established in 1982 when Racal
Strategic Radio Plc, a subsidiary of Racal Electronics
Plc.
• Later it was de-merged from Racal Electronics and
named the Vodafone Group in 1991 by accounting its
20 percent shares of its value in to London stock
Exchange.
• During its expansion in overseas it purchases Air
Touch Communication Inc in the US and changed its
name to Vodafone Air Touch Plc.
6. Hutchison Essar Ltd
• HEL was one of the leading mobile operators in India.
• It was the fourth largest service provider in terms of
customer numbers.
• HEL was a Joint venture between HTIL and Essar. They
started their services under the brand name Hutch in
1994 after it acquired the cellular license for the Mumbai
circle.
• The company was initially set up as a joint venture
between HTIL and Max India Ltd.
• In July 2005, Essar bought a 64 percent stake in BPL
Cellular Ltd. for US$ 1.156 billion, making it the largest
ever acquisition in the Indian telecom sector at that time
7. The Slugfest
• Before initiating the bidding process, Vodafone had to clear many regulatory
issues.
• Stake with Bharti Airtel of 10%.
• Clearances from regulatory bodies like FIPB, TRAI.
• Essar made a bid of US $ 11 billion to acquire remaining 52% stake in HEL. Priority
as already a partner in the venture.
• Other contenders in race.
Essar Group
Anil Ambani-owned Reliance Communications
The UK-based Vodafone
Private equity (PE) players.
Malaysia’s Maxis Communications
Egyptian Telco Orascom
8. The Aftermath
• On March 22, 2007, Vodafone signed a shareholder agreement with its
Indian partner, Essar, according to which
Vodafone - 52%
Essar- 33%
Minority shareholders, such as Asim Ghosh (Ghosh), Infrastructure
development finance company (IDFC) and Analjit Singh together holds 15
per cent stake in the company.
• Vodafone and Essar came to an agreement to run HEL jointly and agreed
to change the name of the company to Vodafone Essar.
• Vodafone sold back to Bharti its 5.6% direct stake in Bharti for US $ 1.6 bn.
9. Outlook
• Vodafone planned to bring world class branding to India after
the 'Hutch' brand was replaced by the Vodafone.
• Vodafone wanted to take 3G to the rural areas to provide hi-
speed data services to the rural masses
• Invest US $ 2 billion to expand its reach in rural areas.
• Introduce ultra-low cost handsets in the rural market,
procured from China.
11. Rivalry against Existing competitors
The major competitors were:
1. BSNL & MTNL(State Owned companies)
2. Reliance telecommunications, Bharti Airtel, Essar
and Orascom (Private India Owned Companies)
12. Bargaining Power of Customers
There was no such provision as the tariffs were
decided by the company itself or in other words
service providers were the main drivers.
Bargaining power of suppliers
Mobile handset providers: Vodafone took low cost
handsets from ZTE.
Software providers had a strong bargaining power.
13. Threats from new entrants
• Uninor
• Stel
• DOCOMO
• MTS
Threats from substitutes
Landline market in rural areas mainly provided by
BSNL being a substitute of mobile technology was a
threat to Vodafone.
14. SWOT Analysis
Strength:
• Vision to become global leader
• Good & strong relationship with customers
• Best & latest Technologies
Weakness:
• Shortage of expensive and costly material
• Meeting needs of each and every customer was a
difficult task
15. SWOT Analysis
Opportunity:
• Targeting and expanding into rural area
• To become a pan- Indian operator like BSNL etc
• Introduce several ultra low cost handsets
Threat:
• Competitors
• New entrants
• Change in service as a change in taste.
16. What, according to you, promoted Vodafone to
expand into the emerging markets? Do you think
Vodafone’s acquisition of Hutchison Essar will
help it in this regards?
• Fast growth industry in Indian mobile market
• 3G services with high speed data services widely
spread in Indian market
• In terms of making heavy profit
17. Critically analyze Vodafone’s decision to acquire
Hutchison Essar. Discuss whether it would have
been more beneficial for Vodafone of it had
started business on its own from scratch rather
than acquiring Hutchison Essar?
• Hutchison Essar deal was overpaid
• FDI allowed 74% stake of foreign companies in
telecom sector.
• Which could have helped them to get started
services of their own
18. Discuss HTIL’s strategy of exiting the highly
lucrative Indian market after it has developed
business in India from scratch?
• 700% return on its investment in India
• Exit was well timed
• With future expansion, HTIL’s investment would have been
non profitable
