Merger & Acquisition :

Merger & Acquisition Vodafone & Hutchison Telecom

Merger :

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 Merger Acquisition An acquisition, also known as a takeover, is the
buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile

Slide 4:

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 & A

Slide 5:

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 & A

Slide 6:

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 & A

Slide 7:
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 & Acquisitions

Slide 8:

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&A

Slide 9:

Merger & Acquisition 2007- 08 Global TOP 5 M&A Deals

Slide 10:

Vodafone purchased stake in Hutch (Hutchison Telecom International) for USD 11.08 billion
Merger & Acquisition

Slide 11:

Founded : 1983 as Racal Telecom, independent 1991 Group : Vodafone Plc Headquarters :
Berkshire, UK Key People : Vittorio Colao, CEO & Sir John Bond, Chairman Industry : Mobile
Telecommunications. Presence : Equity Interest in 25 Countries & Network Partner in 42
Strength : 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)

Slide 12:

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 - Essar

Slide 13:

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 Essar

Slide 14:

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 Essar

Slide 15:

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 Exit

Slide 16:

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…

Slide 17:

Deal 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 Vodafone acquisition is
subject to a number of approvals including from the Department of Telecommunications and the
Government (FIPB). 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
Telecom The Department of Telecommunication has given its nod All licensing conditions to be
met by Vodafone. 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

Slide 18:

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 Vodafone

Slide 19:

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 … Cont

Slide 20:

"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

Slide 21:

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)

Slide 22:
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
Taxation

• The race for Hutch-Essar

This could also adversely impact the financial profile of the acquirer if substantial dent is
incurred to fund the deal, the rating agency said adding the strategic value of Hutch would be
most significant for Vodafone and RComm.

It said the competition for Hutch is aggressive and the counter parties are reportedly willing to
pay around $20 billion for Hutchison Telecommunications International Limited's 67 per cent
stake in Indian mobile venture.

The major contenders include Vodafone, RCL, Essar Group, Egypt's [ Images ] Orascom
Telecom and Hinduja Group.

"Hutch will not only be a good fit for Vodafone's portfolio but the robust growth in India could
also help offset slowing growth in the group's traditional West-European markets," the agency
said.

UK-based Vodafone has an impressive footprint spanning 27 countries but has a limited
exposure to Asia, which has some of the fastest growing telecom markets.

Fitch said the merger of RComm and Hutch would radically alter the competitive scenario.

"For Reliance, Hutch is an extremely attractive target from a technology point of view as it has
often expressed keenness to strengthen its GSM franchise," Fitch said.

"There are also obvious scale benefits of operational and capital expenditure savings from a
potential merger with Hutch," it added.

A successful bid by Indian partner Essar would have a largely neutral impact on market structure
and competition, the agency said.

Essar reportedly holds a pre-emptive right of refusal and 'tag-along' rights over HTIL's sale of its
stake in Hutch.
From a political standpoint, Egypt's Orascom, who is also in the race for acquiring Hutch, has a
weaker position than its rival bidders.

For foreign investors, Hutch represents a high quality asset and a rare opportunity to own a piece
of India's compelling growth story, it added.

According to the agency, Indian telecom industry has witnessed a flurry of merger and
acquisition activities in the past 12-18 months, but none of the deals so far remotely compares
with this proposed sale either in terms of acquisition value, strategic significance or implications
for the industry.

A motivating factor for the proposed sale is arguably HTIL's fractious relationship with its
partner Essar, "which ultimately stymied plans for Hutch's much anticipated initial public
offering targeted for 2006."

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Founded 1983 as Racal Telecom, independent 1991

Headquarters Newbury, England, UK

Key people Arun Sarin, CEO

Sir John Bond, Chairman

John Buchanan, Deputy Chairman

Andy Halford, CFO

Industry

Mobile telecommunications

Products

Mobile networks, Telecom services, Etc.

Revenue
▲ £31.104 billion GBP (2007)

Net income

▼ £-1.564 billion GBP (2007)

Slogan

Make the most of now (in many countries, their previous slogan, How are
you?, is still used)

Website
www.vodafone.com

Vodafone is a mobile network operator headquartered in Newbury,

Berkshire, England, UK. It is the largest mobile telecommunications
network company in the world by turnover and has a market value of
about £100 billion (December 2007).

Vodafone currently has equity interests in 25 countries and Partner

Networks (networks in which it has no equity stake) in a further 39
countries. The name Vodafone comes from Voice data fone, chosen by the
company to "reflect the provision of voice and data services over mobile
phones."

At 31 January 2007 Vodafone had 200 million proportionate customers in

25 markets across 5 continents. ("Proportionate customers" means, for
example, that if Vodafone has a 30% stake in a business with a million
customers, that is counted as 300,000). On this measure it is the second
largest mobile telecom group in the world behind China Mobile.

The eight markets where it has more than ten million proportionate
customers are the United Kingdom, Germany, India, Italy, Spain, Turkey,
Egypt and the United States. In the U.S., these customers come via its
minority stake in Verizon Wireless, and in the other seven markets
Vodafone has majority-controlled subsidiaries.
On 30 May 2006, the company announced a loss before tax of £14.9 billion
for 2005, the biggest loss in British corporate history. The loss for the year
from continuing operations was £17.2 billion and the bottom line loss for
the financial year was £21.8 billion.

The company was pushed into loss by impairment charges of £23.5 billion,
which related to the acquisition of Mannesmann several years earlier, and
losses of £4.6 billion in relation to its discontinued business in Japan.

At an operating level it remained highly profitable, with an operating

profit on continuing operations of £9.4 billion before impairment costs.
Vodafone’s original logo was used until the introduction of the speech
mark logo in 1998.

In 1982 Racal Electronics plc's subsidiary Racal Strategic Radio Ltd. won
one of two UK cellular telephone network licenses. The network, known as
Racal Vodafone was 80% owned by Racal, with Millicom and the Hambros
Technology Trust owning 15% and 5% respectively.

Vodafone was launched on 1 January 1985. Racal Strategic Radio was

renamed Racal Telecommunications Group Limited in 1985. On 29
December 1986 Racal Electronics bought out the minority shareholders of
Vodafone for GB£110 million.

In September 1988 the company was again renamed Racal Telecom and on
26 October 1988 Racal Electronics floated 20% of the company. The
flotation valued Racal Telecom at GB£1.7 billion. On 16 September 1991
Racal Telecom was demerged from Racal Electronics as Vodafone Group.

In July 1996 Vodafone acquired the two thirds of Talkland it did not
already own for £30.6 million. On 19 November 1996, in a defensive move,
Vodafone purchased Peoples Phone for £77 million, a 181 store chain
whose customers were overwhelmingly using Vodafone's network. In a
similar move the company acquired the 80% of Astec Communications that
it did not own, a service provider with 21 stores.

In 1997 Vodafone introduced its Speechmark logo, as it is a quotation

mark in a circle; the O's in the Vodafone logotype are opening and closing
quotation marks, suggesting conversation.

On 29 June 1999 Vodafone completed its purchase of AirTouch

Communications, Inc. and changed its name to Vodafone airtouch plc.
Trading of the new company commenced on 30 June 1999. To approve the
merger, Vodafone sold its 17.2% stake in E-Plus Mobilefunk. The
acquisition gave Vodafone a 35% share of Mannesmann, owner of the
largest German mobile network.

On 21 September 1999 Vodafone agreed to merge its U.S. wireless assets

with those of Bell Atlantic Corp to form Verizon Wireless. The merger was
completed on 4 April 2000.

In November 1999 Vodafone made an unsolicited bid for Mannesmann,

which was rejected. Vodafone’s interest in Mannesmann had been
increased by the latter's purchase of Orange, the UK mobile operator.
Chris Gent would later say Mannesmann's move into the UK broke a
"gentleman's agreement" not to compete in each other's home territory.

The hostile takeover provoked strong protest in Germany and a "titanic

struggle" which saw Mannesmann resists Vodafone’s efforts. However on
3 February 2000 the Mannesmann board agreed to an increased offer of
£112bn, then the largest corporate merger ever. The EU approved the
merger in April 2000. The conglomerate was subsequently broken up and
all manufacturing related operations sold off.

Hutch Becomes Vodafone

In one of the biggest brand transition exercises in recent times, Hutch,
India’s fourth-largest mobile service provider will be renamed Vodafone.
Vodafone is spending somewhere in the region of Rs 250 crore on this
high-profile transition.

Vodafone has acquired 67 per cent in Hutchison Essar from Hong Kong-
based Hutchison Whampoa, and completed the acquisition of Hutchison
Essar in May 2007. The brand change that will touch 3.5 crore customers
and four lakh shops and employees will be executed through a media blitz
and the pug, which had become famous with its network advertisement,
will remain.

''This marks a significant chapter in the evolution of Vodafone as a

dynamic and ever-growing brand. The brand change over the next few
weeks will be unveiled nationally through a high profile campaign covering
all important media,'' a news agency quoted the company statement as
saying.

Leading broadcaster Star India has entered into an exclusive deal with
Vodafone Essar for the latter's re-branding campaign to Vodafone from
Hutch.

Financial Results
From its 31 March 2006 year end onwards Vodafone will report its results
in accordance with International Financial Reporting Standards (IFRS). It
has issued results amended to IFRS standards for its 31 March 2004 and
31 March 2005 year ends for information purposes, and these are shown
in the first table below.

Vodafone has some large minority stakes, which are not included in its
consolidated turnover. In order to provide additional information on the
overall scale and growth trends of its business it publishes "proportionate
turnover" figures and these are included in the tables below.

For example, if a business in which it owns a 45% stake has turnover of

£10 billion that equals £4.5 billion of proportionate turnover for Vodafone.
Proportionate turnover is not an official accounting measure and
Vodafone’s proportionate turnover should be compared with other
companies' statutory turnover.

Vodafone also produces proportionate customer number figures on a

similar basis, eg. if an operator in which it has a 30% stake has 10 million
customers that equals 3 million proportionate Vodafone customers.

This is a common practice in the mobile telecommunications industry

Losses for year to 31 March 2006 reflect write downs of assets, principally
in relation to the Mannesmann acquisition. Proportionate turnover
includes £7,100 million from discontinued operations.
Growth of Hutchison Essar (1992-2005):
In 1992 Hutchison Whampoa and its Indian business partner established a
company that in 1994 was awarded a licence to provide mobile
telecommunications services in Mumbai (formerly Bombay) and launched
commercial service as Hutchison Max in November 1995. Analjit Singh of
Max still holds 12% in company.

By the time of Hutchison Telecom's Initial Public Offering in 2004,

Hutchison Whampoa had acquired interests in six mobile
telecommunications operators providing service in 13 of India's 23 licence
areas and following the completion of the acquisition of BPL that number
increased to 16. In 2006, it announced the acquisition of a company that
held licence applications for the seven remaining licence areas.

In a country growing as fast as India, a strategic and well managed

business plan is critical to success. Initially, the company grew its
business in the largest wireless markets in India - in cities like Mumbai,
Delhi and Kolkata.

In these densely populated urban areas it was able to establish a robust

network, well known brand and large distribution network -all vital to
long-term success in India. Then it also targeted business users and high-
end post-paid customers which helped Hutchison Essar to consistently
generate a higher Average Revenue Per User ("ARPU") than its
competitors.

By adopting this focused growth plan, it was able to establish leading

positions in India's largest markets providing the resources to expand its
footprint nationwide.

In February 2007, Hutchison Telecom announced that it had entered into a

binding agreement with a subsidiary of Vodafone Group Plc to sell its 67%
direct and indirect equity and loan interests in Hutchison Essar Limited for
a total cash consideration (before costs, expenses and interests) of
approximately US$11.1 billion or HK$87 billion.
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 licences to operate GSM services in Karnataka,

Andhra Pradesh and Chennai

2003: Acquired AirCel Digilink (ADIL - Essar Subsidiary) which operated in

Rajastan, Uttar Pradesh East and Haryana telecom circles and renamed it
under Hutch brand

2004: Launched in three additional telecom circles of India namely

'Punjab', 'Uttar Pradesh West' and 'West Bengal'

2005: Acquired BPL, another mobile service provider in India

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.

Hutch was often praised for its award winning advertisements which all
follow a clean, minimalist look. A recurrent theme is that its message
Hello stands out visibly though it uses only white letters on red
background.

Another recent successful ad campaign in 2003 featured a pug named

Cheeka following a boy around in unlikely places, with the tagline,
Wherever you go, our network follows. The simple yet powerful
advertisement campaigns won it many admirers.