HUTCHISON ESSAR
ACQUISITION BY VODAFONE
1. Presentation of the deal
In May 2007, Vodafone, the world’s leading mobile communications group with operations in 25 countries, acquired 100% of CGP Investment Limited, a company which owns 67% of Hutchison Essar, from Hutchison Telecommunications Limited. Hutchison Essar was, at that time, the fourth largest mobile operator in India with 16.4% market shares and 23.3 million subscribers. It was also characterized by good financial performance. Revenues grew by 51% in 2006, EBITDA margin was 30% in the six months to 30 June 2006.
Vodafone paid $ 11.1 billion for the deal, thus valuating the company at $ 18.8 billion. Vodafone will assume a net debt of $ 2.0 billion. Vodafone financed the acquisition partly with its huge cash reserves (see appendix for more details on the financing of the deal).
Following the acquisition, Vodafone sold its 5.6% direct shareholding in Bharti Airtel, the leading mobile operator, due to a non- competing clause and signed a Memorandum of Understanding (MOU) with this same company on infrastructure sharing.
2. Other players in the deal
First, Reliance Communications, the second mobile operator, was willing to acquire Hutchison Essar in order to strengthen its position in the GSM segment and become the leader in the mobile market in India with this acquisition. The Essar Group which already owned 33% of the company was motivated in getting a full control over the company. They argued for a right of first refusal in any sale as shareholders of the company. However, this claim was rejected by Hutchison Telecom. Other parties such as the Hinduja conglomerate, the Malaysian company Maxis and the Egyptian firm Orascom competed i ...