Mumbai/New Delhi: Vodafone Group, the world’s biggest mobile phone services company, won the race to acquire a two-thirds stake of Hutchison Essar with a bid that values the entire company $19 billion, or Rs 83,790 crore, including debt, in what is the biggest acquisition within India.
The Berkshire, England suitor’s offer beat out competing bids by Reliance Communications and London-based business family, the Hindujas.
Control of Hutchison Essar will give Vodafone a firm foothold in the Indian cellular market, the fastest growing in the world. Not only does the company own quarter shares each in Mumbai and Delhi, India’s most lucrative telecommunication markets, it controls over 16% of the country’s total mobile phone market.
Hutchison Essar also has the most lucrative customers of any phone company in the country, when measured by average revenues per subscriber.
The Vodafone bid was accepted by Hutchison Telecom International Ltd (HTIL), which owns 67% of Hutchison Essar, said HTIL’s local partner, the Essar Group. Essar also said it had been asked on Sunday night by Vodafone to continue to be a partner in the phone company. “We are at the moment evaluating all our options in the best interest of the group,” the oil-to-steel conglomerate’s vice chairman Ravi Ruia said in a statement. Vodafone didn’t officially comment on its winning bid.
Vodafone will pay about $11.72 billion, discounting $1.5 billion debt, for HTIL’s stake in India’s fourth-largest mobile phone services firm. This values Hutchison Essar’s 24.41 million customers at $778 each. In 2005, Hutchison Essar paid promoters of BPL Mobile $440 a subscriber to acquire operations in Mumbai and three states. Bharti Airtel, India’s No. 1 cellular company, is valued on the stock markets at $978 per subscriber.
“There is a controlling premium at play here. If India’s economic growth continues, it will imply a lot of investment and growth in the telecom sector,” said R. Sreesankar, head of research of Mumbai brokerage IL&FS InvestSmart, adding Vodafone will have to invest aggressively in India.
HTIL is part of the shipping-to-telecom Hong Kong conglomerate Hutchison Whampoa. HTIL chairman Canning Fok, via a video conference link from London, joined other board members in Hong Kong along with Hutchison Whampoa founder Li Ka-shing, on Sunday to evaluate the bids which had come in on Friday.
A senior executive at the Mumbai offices of London-based business family Hindujas said “We are expecting a communication from HTIL on Monday regarding their decision.“We would like to match up the highest bid given a chance.”
A spokesman for Reliance Communications declined comment.
Vodafone chief executive officer Arun Sarin, who visited India last month to pursue his company’s interest in Hutchison Essar had then expressed his willingness to partner with Essar Group in the cellular unit but the offer was then turned down by the Mumbai shareholder.
In the intervening weeks, sources said, meetings Sarin and Vodafone’s top management had with Ruias, the family controlling Essar, yielded fruit.
The agenda before Vodafone is likely to be clear now: it needs to raise the cash to pay HTIL, which it is likely to do through debt. Simultaneously, it has to sell a 10% stake it owns in Bharti Airtel.
The stake is currently valued at $3.3 billion, more than double the price at which it bought last year.