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We have been learning about the companies coming together to from another company and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company. Corporate restructuring refers to a broad array of activities that expands or contracts a firms operation or substantially modify its financial structure or bring about a significant change in its organizational structure and internal functioning. It includes mergers, takeovers, acquisitions, slump sales, demergers etc. Mergers, acquisitions and restructuring have become a major force in the financial and economic environment all over the world. Essentially an American phenomenon till mid-1970s, they have become a dominant global business theme since then. On the Indian scene, too, corporates are seriously looking at mergers, acquisitions and restructuring which has indeed become the order of the day. The pace of corporate restructuring has increased since the beginning of the liberalization era, thanks to greater competitive pressures and a more permissive environment. Mergers, acquisitions and restructuring evoke a great deal of public interest and perhaps represent the most dramatic facet of corporate finance. This report discusses various facets of mergers

Objectives: The present study is an attempt to check the performance of merger and acquisition deals in India in long run. With the following objectives *To examine the rationale behind mergers & acquisitions. *To understand the advantages & disadvantages of mergers & acquisitions in India. *To examine the need for growth through mergers & acquisitions. *To examine the growth of M&A deals in recent time in India. To fulfill the first objective data collected from the last 19 years was studied (year 1988 to 2006). It was found that generally for each succeeding year there was an increase in the mergers and acquisitions activity and the amount attributed for such deals. The number of deals rapidly increases with 113.3% in 1992 possibly due to a liberalization effect on merger and acquisition deals. Between the years 2001 to 2004, although there was an overall decrease in the number of deals, there remained to be a year on year increase. In conclusion there is certainly an increase in merger and acquisition deals in India in recent years. Source(www.puchd.ac.in) Considering the limited research on mergers and acquisitions in Indian industry, research that has been studied has been aimed at reviewing the operating performance of firms going through mergers in the Indian industry. The study has further attempted to investigate and test if there are any significant deviations in the results achieved by mergers in different industry sectors in India, by analyzing sub-samples representing industry sectors.


Mergers & Acquisition have gained popularity throughout the world in the recent times. They have become popular due to globalization, liberalization, technological developments & intensely competitive business environment. Mergers and acquisition are a big part of the corporate finance world. This process is extensively used for restructuring the business organization. In India, the concept of mergers and acquisition was initiated by the government bodies. The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy. Mergers and Acquisitions (M&A) have been around for a long time and has experienced waves of popularity during these times and they are very much an important part of today's business world. They have also become increasingly international which can be due to the rising global competition. The popularity of cross-border M&A's makes it important to look at them from an international perspective

LIMITATION Another case study parallel to this report could be examined further to get a more detailed result. More parameters could be used even in the same report to reach a different more in-depth conclusion. However the study could not be done on all the cases of mergers and acquisition for the selected time period, which would have given a more in-depth look on the results. Further studies may help to develop some alternate measures of merger-related gains as financial measures have limitations to capture the full impact of merger on corporate performance. However, a study providing detailed insights into the reasons and patterns of post-merger corporate performance across the types of mergers and industry would be useful. The recent research shows that management cannot rely solely on mergers & acquisition as a source of growth and profitability. A case study based research parallel to this study could be initiated to get nearer to reality show.

CHAPTER 2 COMPANY PROFILE GC Cables & Broadband Servics is a "Category A" (all India) ISP licence holder. It offers its broadband services under an exclusive arrangement with the company IndusInd Media and Communications (IMC), using their existing cable network across India.

IMC commenced operations in 1995 and has built up India's largest cable television (CATV) network. It currently provides multi-channel transmission services under the brand name INCableNet and ranks amongst the 12 largest cable TV operators in the world in terms of subscribers. In addition to Mumbai, IMC's network covers 11 major cities in northern, southern and western India viz: Delhi,Agra, Hyderabad, Banglaore, Ahmedabad, Nasik, Belgaum, Indore and Nagpur. IMC is well advanced in its plan for development of Pay TV platform with Interactive TV/internet capability. In cognizance with the Company's plans for technological convergence, GC Cables & Broadband servics has joined hands with IMC to provide Internet over the existing cable network.

Users across Mumbai will thus have access to high-quality Internet services round the clock.The Company plans to provide this service in 49 cities across the country

It offers its broadband services under an exclusive arrangement with company IndusInd Media and Communications (IMC), using their existing cable network across India. The proceeds of the investment are being used for enhancing the broadband capabilities and expansion to other cities. Servicing over 25,000 users covering SOHOs, corporates, cyber cafs and cable home.


The success of any research depends upon a well structured methodology. It is vital for any researcher to formulate a research friendly methodology that can provide maximum information at a given time constraint. This dissertation is about the growing trend of mergers and acquisitions activity in India's corporate scene. The subject of the dissertation is spurred from the research done for my own understanding of the topic. My own interest in this domain was influenced by "economic growth of India "and "mergers and acquisitions". The findings in the thesis are very much representing an inductive research. Inductive reasoning/research is known as "bottom up approach". Where result and hypothesis is based on specific observations to broader theories and generalizations. This suggests that the findings, hypothesis, observations and conclusion in the dissertation are based on the collected data. Since it would be impossible to conduct a survey or questionnaire based research on mergers and acquisitions in India .So, in order to understand the behaviour of Indian organizations and industries on mergers and acquisitions with respect to growth and market capitalization it is important to do a thorough study of already available data on M&A`s in India .The inductive approach means that the mergers and acquisitions trends and effects on Indian economy could be approached freely, and allowed to be explore the data fully. The success of any research depends upon a well structured methodology. It is vital for any researcher to formulate a research friendly methodology that can provide maximum information at a given time constraint. The research based analysis and study of mergers and acquisitions is based on collection of data, organization of data and integration of the information on mergers and acquisitions. Data collection is the most pivotal step in the success factor of the research because it leads to more legitimate and credible results. The research study

is based on several mergers and acquisitions in number of industries whether they were both successful and unsuccessful in the last decade or so. In the research analysis the focus is more on the recent decade's activities of mergers and acquisitions in India. The social sciences are methodologically getting very diverse because of the use of qualitative, quantitative and mixed methods approaches. Quantitative methods include hypothesis testing, observational studies, re sampling, regression analysis and high dimensional level analysis and others. Qualitative methods include the phenomenology, case studies, grounded theories and ethnography and others. After the analysis of the existing statistics and literature and also the analysis of the leading economists the the approach is both Quantitative and Qualitative. As it is based on secondary search, all the selected data is from rigorous analysis of articles from journals, books, internet and magazines. As the research is based on both Quantitative and Qualitative .so, the theoretical evidences and empirical data are mainly from the research papers, articles and by the highly respective economic research, thesis and journals.


In a general sense, mergers and acquisitions are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.

The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency. However, the underlying business rationale and financing methodology for mergers and acquisitions are substantially different.

A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders. A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.

A takeover, or acquisition, on the other hand, is characterized the purchase of a smaller company by a much larger one. This combination of "unequal" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per share to the target firm's shareholders or the

acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.

In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about.

MERGER:Mergers involve the mutual decision of two companies to combine & become one entity. The combined business can cut cost of operation & increase profit which will boost shareholders value for both groups of shareholders. In Merger of two corporations, shareholders usually have their shares in the old organization & are exchanged for an equal numbers of shares in the merged entity. According to the Oxford Dictionary merger means combining of two companies into one. Merger is a fusion between two or more enterprises, whereby the identity of one or more is lost and the result is a single enterprise. In merger the assets and liabilities of the companies get vested in another company, the company that is merged losing its identity and its shareholders becoming shareholders of the other company. All assets, liabilities and the stock of one company are transferred to Transferee Company in consideration of payment in the form of: Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes.

In the pure sense, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, Daimler Chrysler, was created.

ACQUISITION:Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. On the other hand, Acquisition means the purchase of a smaller company by much larger one. A larger company can initiate an Acquisition of smaller firm which essentially amounts to buy the company in the face of resistance from smaller companys management. Unlike Mergers in an Acquisition the acquiring firm usually offers a cash price per share to target firms shareholders. Acquisition means an attempt by one firm to gain majority interest in the another firm called target firm &dispose-off its assets or to take the target firm private by small group of investors. A company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company.

An acquisition may be affected by; (a) agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; (b) purchase of shares in open market; (c) to make takeover offer to the general body of shareholders; (d) purchase of new shares by private treaty; (e) Acquisition of share capital through the following forms of considerations viz. means of cash, issuance of loan capital, or insurance of share capital.

There are broadly two kinds of strategies that can be employed in corporate acquisitions. These include:

I. Friendly Takeover:-

The acquiring firm makes a financial proposal to the target firms management and board. This proposal might involve the merger of the two firms, the consolidation of two firms, or the creation of parent/subsidiary relationship.

II. Hostile Takeover:-

A hostile takeover may not follow a preliminary attempt at a friendly takeover. For example, it is not uncommon for an acquiring firm to embrace the target firms management in what is colloquially called a bear hug.


HISTORY:Merger and acquisition activity in the United States has typically run in cycles, with peaks coinciding with periods of strong business growth. U.S. merger activity has been marked by five prominent waves: one around the turn of the twentieth century, the second peaking in 1929, the third in the latter half of the 1960s, the fourth in the first half of the 1980s, and the fifth in the latter half of the 1990s. This last peak, in the final years of the twentieth century, brought very high levels of merger activity. Bolstered by a strong stock market, businesses merged at an unprecedented rate. The total dollar volume of mergers increased throughout the 1990s, setting new records each year from 1994 to 1999. Many of the acquisitions involved huge companies and enormous dollar amounts. Disney acquired ABC Capital Cities for $19 billion, Traveler's acquired Citicorp for $72.6 billion, Nation Bank acquired Bank of America for $61.6 billion and Daimler-Benz acquired Chrysler for $39.5 billion.



Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.


TYPES OF MERGERS:There are three main types of mergers which are Horizontal merger, Vertical merger & Conglomerate merger. These types are explained as follows;

1. Horizontal Merger:This type of merger involves two firms that operate & compete in a similar kind of a business. Horizontal merger is based on the assumptions that it will provide economies of scale from the larger combined unit. The economies of scale are obtained by the elimination of duplication of facilities, broadening the product line, reduction in the advertising cost. Horizontal mergers also have potentials to create monopoly power on the part of the combined firm enabling it to engage in anti-competitive practices. Examples: Mumbai - Glaxo India Limited and Smith Kline Beecham Pharmaceuticals (India) Limited have legally merged to form GlaxoSmithKline Pharmaceuticals Limited in India (GSK). A merger would let them pool their research & development funds and would give the merged company a bigger sales and marketing force. Merger of Centurion Bank & Bank of Punjab. Merger between Holicim & Gujarat Ambuja Cement ltd

2. Vertical Merger:A vertical Merger involves merger between firms that are in different stages of production or value chain. A company involved in vertical merger usually seeks to merge with another company or would like to takeover another company mainly to expand its operations by backward or forward integration. The acquiring company through merger of another units attempt to reduce inventory of raw materials and finished goods. The basic

purpose of vertical merger is to eliminate cost of searching raw materials. Vertical merger takes place when both firm plan to integrate the production process and capitalize on the demand for the product. A company decides to get merged with another company when it is not in a position to get strong position in a market because of imperfect market of intermediary product, scarcity of resources. Example: - Among the Indian corporate that have emerged as big international players is the Videocon group. The group became the third largest colour picture tube manufacturer in the world when it announced the purchase of the colour picture tube business of France-based Thomson SA, which includes units in Mexico, Poland and China, for about Rs 1260 crore. 3. Conglomerate merger:Conglomerate mergers means mergers between firms engaged in unrelated types of business activity. The basic purpose of such combination is utilization of financial resources. Such type of merger enhances the overall stability of the acquirer company and creates balance in the companys total portfolio of diverse products and production processes and thereby reduces the risk of instability in the firms cash flows. Conglomerate mergers can be distinguished into three types: I. Product extension mergers These are mergers between firms in related business activities and may also be called concentric mergers. These mergers

broaden the product lines of the firms. II. Geographic market extension mergers: These involve a merger between two firms operating in two different geographic areas.

III. Pure conglomerates mergers: These involve mergers between two firms with unrelated business activities. They do not come under product extension or market extension.


REASONS FOR MERGERS & ACQUISITIONS:There are many reasons or factors that motivate companies to go for mergers and acquisitions such as growth, synergy, diversification etc.

1. Growth: One of the most common reason for mergers is growth. There are two broadways a firm can grow. The first is through internal growth. This can be slow and ineffective if a firm is seeking to take advantage of a window of opportunity in which it has a short-term advantage over competitors. The faster alternative is to merge and acquire the necessary resources to achieve competitive goals. Even though bidding

firms will pay a premium to acquire resources through mergers, this total cost is not necessarily more expensive than internal growth, in which the firm has to incur all of the costs that the normal trial and error process may impose. While there are exceptions, in the vast majority of cases growth through mergers and acquisitions is significantly faster than through internal means. Mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves - instead, they buy a competitor's business for a price. Usually, these are called horizontal mergers. For example, a beer company may choose to buy out a smaller competing brewery, enabling the smaller company to make more beer and sell more to its brand-loyal customers. Example- RPG group had a turnover of only Rs. 80 crores in 1979, which has increased to about Rs.5600 crores in1996. This phenomenal growth was due to the acquisitions of several companies by the RPG group. Some of the companies acquired are Asian Cables, Calcutta Electricity Supply and Company, etc.

2. Synergy: Another commonly cited reason for mergers is the pursuit of synergistic benefits. The most commonly used word in Mergers & Acquisitions is synergy, which is the idea of combining business activities, for increasing performance and reducing the costs. Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses. This is the new financial math that shows that 1 + 1 = 3. That is, as the equation shows, the combination of two firms will yield a more valuable entity than the value of the sum of the two firms if they were operating independently. Value (A + B) > Value (A) + Value (B) Although many merger partners cite synergy as the motive for their transaction, synergistic gains are often hard to realize. There are two types of synergy one is derived from cost economies and other one is derived from revenue enhancement. Cost economies are the easier to achieve because they often involve eliminating duplicate cost factors such as redundant personnel and overhead. When such

synergies are realized, the merged company generally has lower per-unit costs. Revenue enhancing synergy is more difficult to predict and to achieve. An example would be a situation where one companys capability, such as research process, is combined with another companys capability, such as marketing skills, to significantly increase the combined revenues.

3. Diversification : Other reasons for mergers and acquisitions include diversification. A company that merges to diversify may acquire another company engaged in unrelated industry in order to reduce the impact of a particular industry's performance on its profitability. The track record of diversifying mergers is generally poor with a few notable exceptions. A few firms, such as General Electric, seem to be able to grow and enhance shareholders wealth while diversifying. However, this is the exception rather than a norm. Diversification may be successful, but it needs more skill and infrastructure than some firms have.

4. Economies of scale: Yes, size matters. Whether it's purchasing stationery or a new corporate it system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit.

5. Increase Market Share & Revenue: This reason assumes that the company will be absorbing a major competitor and increasing its power (by capturing increased market share) to set prices. Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier

time raising capital than smaller ones. Example-Premier and Apollo Tyres,

6. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the distributors, a business can eliminate a level of costs. If a company buys out one of its suppliers, it is able to save on the margins that the supplier was previously adding to its costs; this is known as a vertical merger. If a company buys out a distributor; it may be able to sale its products at a lower cost.

7. Eliminate Competition: Many mergers and acquisitions deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market. The downside of this is that a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower in response to the company paying too much for the target company.

8. Acquiring new technology: To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge and vice versa.

9. Procurement of production facilities: Procurement of production facilities may be the reason for acquiring company to go for mergers and acquisition. It is a kind of backward integration. Acquiring Firms will take the decision of merging with another firm who supplies raw material to acquiring firm in order to safeguard the sources of supplies of raw material or intermediary product. It will help acquiring firm to bring economies in purchasing of raw material. It will also help to cut down the transportation cost.

Example- Videocon takes over Thomson picture tube in China to procure supply of picture tube required for producing television sets.

10. Market expansion strategy: Many firms go for mergers and acquisitions as a part of market expansion strategy. Mergers and acquisitions will help the company to eliminate competition and to protect existing market. It will also help the firm to obtain new market for promoting their existing or obsolete products. For example, Lenovo takes over IBM in India to increase market for Lenovo products like desktops, laptops in India.

11. Financial synergy: Financial synergy may be the reason for mergers and acquisitions. Following are the financial synergy available in case of mergers and acquisitions; I. Better credit worthiness- This helps companies to purchase good on credit, obtain bank loan and raise capital in the market easily. II. Reduces cost of capital- The investors consider big firms as safe and hence they expect lower rate of return for the capital supplied by them. So the cost of capital reduces after merger. III. Increase debt capacity- After the merger the earnings and cash flows become more stable than before. This increase the capacity of the firm to borrow more funds. IV. Rising of capital- After the merger due to increase in the size of the company, better credit worthiness and reputation the company can easily raise the capital at any time.

12. Own development plans: The purpose of mergers & acquisition is backed by the acquiring companys own developmental plans. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not

have any problem of taxation, accounting, valuation, etc. but might feel resource constraints with limitations of funds and lack of skill managerial personnel. It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities; secure additional financial facilities eliminate competition and strengthen its market position.

13. Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. The combining corporate aims at circular combinations by pursuing this objective

14. General gains: I. To improve its own image and attract superior managerial talents to manage its affairs. II. To offer better satisfaction to consumers or users of the product.

15. Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company. Ahmadabad Cotton Mills Merged with Arvind Mills ( Rs =3.34 crores) Sidhaper Mills merged with Reliance Industries Ltd.(Rs. 3.34 crores)



1) ADVANTAGESMergers and acquisitions is the permanent combination of the business which vest management in complete control of the business of merged firm. Shareholders in the selling company gain from the mergers and acquisitions as the premium offered to induce acceptance of the merger or acquisitions. It offers much more price than the book value of shares. Shareholders in the buying company gain premium in the long run with the growth of the company. Mergers and acquisitions are caused with the support of shareholders, managers and promoters of the combing companies. The advantages, which motivate the shareholders and managers to give their support to these combinations and the resulting consequences they have to bear, are briefly noted below.

From shareholders point of view: - Shareholders are the owners of the company so they must get be benefited from the mergers and acquisitions. Mergers and

acquisitions can affect fortune of shareholders. Shareholders expect that investment made by them in the combining companies should enhance when firms are merging. The sale of shares from one companys shareholders to another and holding investment in shares should give rise to greater values. Following are the advantages that would be generally available in each merger and acquisition from the point of view of shareholders; 1. Face value of the share is increased. 2. Shareholders will get more returns on the investments made by them in the combining companies. 3. Sale of shares from one companys shareholder to another is possible. 4. Shareholders get better investment opportunities in mergers and acquisitions. From managers point of view: - Managers are concerned with improving operations of the company, managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status, perks and fringe benefits. Mergers where all these things are the guaranteed outcome get support from the managers.

From Promoters point of view: 1. Mergers offer companys promoters advantages of increase in the size of their company, financial structure and financial strength. 2. Mergers can convert closely held and private limited company into public limited company without contributing much wealth and losing control of promoters over the company.

From Consumers point of view: - Consumers are the king of the market so they must get some benefits from mergers and acquisitions. Benefits in favour of the consumer will depend upon the fact whether or not mergers increase or decrease competitive economic and productive activity which directly affects the degree of

welfare of the consumers through changes in the price level, quality of the products and after sales service etc. Following are the benefits that consumers may derive from mergers and acquisitions transactions; 1. Low price & better quality goods: - The economic gains realized from mergers and acquisitions are passed on to consumers in the form of low priced and better quality goods. 2. Improve standard of living of the consumers: - Low priced and better quality products directly improves standard of living of the consumers.

2) DISADVANTAGESMerger or acquisition of two companies in the same field or in diverse field may involve reduction in the number of competing firms in an industry and tend to dilute competition in the market. They generally contribute directly to the concentration of economic power and are likely to lead the merger entities to a dominant position of market power. It may result in lesser substitutes in the market, which would affect consumers welfare. Yet another disadvantage may surface, if a large undertaking after merger because of resulting dominance becomes complacent and suffers from deterioration over the years in its performance. Following are some disadvantages of mergers and acquisitions;

Creates monopoly- when two firms merged together they get dominating position in the market which may lead to create monopoly in the market. Leads to unemployment-Raiders shouldnt have the right to buy up firms they have no idea how to run the employees who have spent their lives building up the firm should be making the decisions.

Raiders become filthy rich without producing anything, at the expense of hardworking people who do produce something. M&A damages the morale and productivity of firms. Corporate debt levels have risen to dangerous levels. Managers pressured to forego long-term investment in favour of short-term profit.

Shareholders may be payed lesser dividend if the firm is not making profits. There may be a possibility that shareholders would be paid less returns on investment if the company is not earning enough profit.

Corporate raiders use their control to strip assets from the target, make a quick profit, destroying the company in the process, throwing people out of work.


PROCEDURE OF MERGER: 1. Search for merger partner- The first step in mergers is to search for merger partner. The top management may use their own contact in the same line of economic activity or in the other diversified field which could be identified as a better merger partners. Such identification should be based on the detail information of the merger partners collected from public and private sources.

2. Agreement between the two companies- The beginning of actual merger procedure starts with agreement between the merging companies, but mere agreement does not provide legal cover to the transaction unless it is sanctioned by the Court under section 391 of Companies Act 1956. 3. Scheme of merger The scheme of merger should be prepared by the companies which have taken decision of merging. There is no specific form prescribed for scheme of merger but scheme should contain following information; Particulars about the merging companies. Main terms of transfer of assets and liabilities from transferor to transferee. Conditions of conducting business. Particulars about share capital of merging companies specifying authorized capital issued capital and paid up capital. Description of proposed profit sharing ratio and any condition attached to it. Conditions about payment of dividend. Status of employees of the merging companies and also status of provident fund, gratuity fund or any funds created for the benefits of existing employees. Treatment of debit balance of merging companies. Miscellaneous provisions covering income tax dues, contingencies and other accounting entries. 4. Approval of Board Of Directors for the scheme- The scheme for merger must be approved by the respective Board Of Directors of transferor and transferee companies. 5. Approval of scheme by financial institutions- The Board of Directors should in fact approve the scheme after it has been approved by the financial institutes, debenture holders, banks which have granted loans to the companies. Approval of Reserve Bank of India is also needed.

6. Application to the Court- The next step is to make an application under section 39(1) of Indian Companies Act 1956 to the High Court for getting permission for merging between companies. 7. Approval of scheme by the Court- On the receipt of the application for merger the Court will decide whether to approve the scheme of merger or not. Once the Court has approved the application then firms can merged. 8. Transfer of assets and liabilities- The High Court has the power to give order for transfer of any property from Transferor Company to Transferee Company. By the virtue of such order assets and liabilities of the Transferor Company shall automatically stand transferred to Transferee Company.

9. Allotment of shares to shareholders of transferor company- By the virtue of sanctioned scheme of merger, the shareholders of Transferor Company are entitled to get shares in Transferee Company in the exchange of ratio provided under the said scheme. 10. Intimation to stock exchanges- After merger is effected; the company which takes over assets and liabilities of the Transferor Company should apply to the Stock Exchanges where its securities are listed, for listing the new shares allotted to the shareholders of the company. 11. Public announcement- Public announcement of merger is mandatory as required under SEBI regulations. The Transferee Company shall appoint merchant bank to make a public announcement of merger on the behalf of Transferee Company. Public announcement shall be made at least in one national English daily one Hindi daily and one regional language daily newspaper of that place where the shares of that company are listed and traded. Public announcement should be made within four days from finalization of negotiations or entering into any agreement of merger. Public announcement should contain following information; Paid up share capital of the transferee company, the number of fully paid up and partially paid up shares. The minimum offer price for each fully paid up or partly paid up share.

Mode of payment of consideration. Salient features of the agreement, if any, such as the date, the name of the seller, the price at which the shares are being acquired, the manner of payment of the consideration and the number and percentage of shares in respect of

which the acquirer has entered into the agreement to acquire the shares or the consideration, monetary or otherwise, for the acquisition of control over the transferee company, as the case may be;

Objects and purpose of the mergers and acquisitions and the future plans of the transferor company for the transferee company. Provided that where the future plans are set out, the public announcement shall also set out how the transferor proposes to implement such future plans.

The date by which individual letter of offer would be posted to each of the shareholder. The date of opening and closure of the offer and the manner in which and the date by which the acceptance or rejection of the offer would be communicated to the share holders.

The date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted.

Approvals of banks or financial institutions required, if any; Such other information as is essential for the shareholders to make them informed about the offer.


PARTICIPANTS IN MERGERS AND ACQUISITIONS:Mergers and Acquisitions process requires highly skilled and qualified group of advisers. Each advisor specializes in a specific aspect of the merger and acquisition process. The role played by such advisers or professional experts are as follows;

1. Investment bankers: Investment banking is one of the most important department in the process of mergers and acquisitions. It is fee based adviser department which works with the company that wish to acquire other company or with industries that wish to purchase a smaller industry. The main role of investment banks is to provide finance for mergers and acquisitions transactions. 2. Lawyers: The legal framework surrounding a typical transaction has become so complicated that no one individual can have sufficient expertise to address all the issues. In large and complicated transactions, legal teams consists of more than one dozen lawyers each of them represents specialized aspects of law. Lawyers are expected to perform all legal proceedings. 3. Accountants: Services provided by accountants include advice on the optimal tax

structure, financial structuring and performing financial due diligence. A transaction can be structured in many different ways, with each having different tax implications for the parties involved. Tax accountants are vital in determining the appropriate tax structure. Accountants also perform the role of auditors by reviewing the transferor companys financial statements and operations through a series of interviews with senior and middle level managers.

4. Valuation experts: They may be appointed either by the bidder or the Transferor Company to determine the value of the transferor company. They build models that incorporate various assumptions such as costs or revenue growth rate. 5. Institutional investors: They include public and private pension funds, insurance companies, banks, mutual funds. Collection of institutions can influence firms action. They invest their money in the company.



1. Factors responsible for successful mergers and acquisitions

The success of merger depends upon many critical factors but the main factor is that Transferor Company should buy Transferee Company at right time, at right place and at right cost. Just because of company is for sale and another company can afford buying that company is not good reason to do a deal. The success of mergers and acquisitions depend on how realistic deal makers are and how well they can integrate two companies while maintaining day-to-day operations. There are several key ingredients that need to come together for merger and acquisitions to be successful;

I. Strategy- Strategy is the basis for any merger and acquisition. Company should be able to express in one sentence the motive behind merger and acquisition. If the transferor company is not able to express the motive for doing a deal for merger then the deal should not be done. There are many strategic reasons to buy a company some of them are listed as follows; Acquire Innovative technical skills. Obtain new markets and customer. Enhance product line.

II. Motive- Buying company i.e. transferor company does not know reasons why another company is being sold. It should ask reasons for selling the company. Transferor Company should also try to know what selling company knows about the business that they are not

telling potential buyers. After knowing all reasons for selling a company buying company would be in a position to decide whether to go for a deal or not. If they are going for deal then buying company should decide appropriate price for the deal. Buying company should also examine its own motive for wanting to acquire the company, whether it is good asset for the company that would enhance the market of buying company. III. Price- A low price does not always equate to a good deal, but higher the price; it is fewer cushions for unexpected problems. Buying company is often forced to pay more price than they want to pay for the deal. In a competitive situation the buying company needs to decide how much it is willing to pay and not exceed that level, even if it means losing the company. However, in any merger and acquisition there is a pricing range, based on different assumptions of the future performance of the merger and acquisition. The buying company has to decide the price to offer for the deal, or how risk will be divided between shareholders of merging company. . IV. POST MERGER MANAGEMENT- For a merger to succeed much work a remains after the deal has been signed. The strategy and business model of the old firms may no longer be appropriate when a new firm is formed. Each firm is unique and presents its own set of problems and solutions. It takes a systematic effort to combine two or more companies after they have come under a single ownership. V. DUE DILIGENCE- Due diligence means, A large part of what makes a deal successful after completing it, is what is being done before completing it. Before the closing of the deal, the buyer should engage in a thorough due diligence review of the sellers business. The purpose of the review is to detect any financial and the business risk that the buyer might inherit from the seller. The due diligence team can identify ways in which assets, process and other resources can be combined in order to realize cost saving and other expected synergies. The planning team can also try to understand the necessary sequencing of events and resulting pace at which the expected synergies may be realized.

Factors responsible for failure of mergers and acquisitions As there are many factors responsible for success of mergers similarly there are many factors responsible for failure of the merger. The main factor is buying wrong company at wrong time, at wrong place and by paying wrong price. If the process through which merger is executed is faulty then it will affect merger adversely. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. Some of reasons for failure of mergers and acquisitions are listed below; I. Payment of high price- The merger fails when the maximum price is paid to buy another company. In such situation shareholders of Transferee Company will receive more cash but the shareholders of Transferor Company will pay more cash. As a result of this deal for merger will fail. II. Culture clash- Lack of proper communication, differing expectations and conflicting management styles due to differences in corporate culture contribute to failure in implementing plan and therefore, failure of mergers and acquisitions. III. Overstated synergies: - An acquisition can create opportunities of synergy by increasing revenues, reducing costs, reducing net working capital and improving the investment intensity. Over estimation of such synergies may lead to a failure of this merger. Inability to prepare plans leads to failure of mergers and acquisitions. IV. Failure to integrate operations- Once firms are merged management must be prepared to adapt plans in favour of changed circumstances. Inability to prepare plans leads to failure of mergers and acquisitions. V. Inadequate due diligence- The process of the due diligence helps in detecting any financial and business risks that the buyer might inherit from the seller. Inadequate due diligence results in the failure of the mergers and acquisitions.



No marketplace currently exists for the mergers and acquisitions of privately-owned small to mid-sized companies. Market participants often wish to maintain a level of secrecy about their efforts to buy or sell such companies. Their concern for secrecy usually arises from the possible negative reactions a company's employees, bankers, suppliers, customers and others might have if the effort or interest to seek a transaction were to become known. At present, the process by which a company is bought or sold can prove difficult, slow and expensive. A transaction typically requires six to nine months and involves many steps. Locating parties with whom to conduct a transaction forms one step in the overall process and perhaps the most difficult one. Qualified and interested buyers of multimillion dollar corporations are hard to find. Even more difficulty is to bring a number of potential buyers forward simultaneously during negotiations. Potential acquirers in industry simply cannot effectively "monitor" the economy at large for acquisition opportunities even though some may fit well within their company's operations or plans. An industry of professional "middlemen" (known variously as intermediaries, business brokers, and investment bankers) exists to facilitate mergers and acquisitions transactions. These professionals do not provide their services cheaply and generally resort to previously-established personal contacts, direct-calling campaigns, and placing advertisements in various media. In servicing their clients they attempt to create a one-time market for a one-time transaction. Many but not all transactions use intermediaries on one or both sides. Despite best intentions, intermediaries can operate inefficiently because of the slow and limiting nature of having to rely heavily on telephone communications. Many phone calls fail to contact with the intended party.

Busy executives tend to be impatient when dealing with sales calls concerning opportunities in which they have no interest. These marketing problems typify any private negotiated markets. The market inefficiencies can prove detrimental for this important sector of the economy. Beyond the intermediaries' high fees, the current process for mergers and acquisitions has the effect of causing private companies to initially sell their shares at a significant discount. Furthermore, it is likely that since privately-held companies are so difficult to sell they are not sold as often as they might or should be. Previous attempts to streamline the mergers and acquisitions process through computers have failed to succeed on a large scale because they have provided mere "bulletin boards" hence; it becomes difficult to maintain secrecy. There is a need of a method for efficiently executing mergers and acquisitions transactions without compromising the confidentiality of parties involved and without the unauthorized release of information which is difficult rather almost impossible. It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that the merger will cut costs or boost revenues by more than enough to justify the price premium. It can sound so simple: just combine computer systems, merge a few departments, use sheer size to force down the price of supplies and the merged giant should be more profitable than its parts but to apply all these things in practical is very difficult. In other words, in theory, 1+1 = 3 sounds great, but in practice, it is not so easy. Another difficulty may be Government rules and regulations. Countries like India do not allow foreign companies to enter into the domestic market. Thus foreign companies are forced to merge with Indian company to enter into Indian market even though they have the power and funds to enter in India alone that is without merging with any other company. Example- 1) Wal-Mart is trying to enter into Indian market by merging with Bharti telecom. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive mergers can be flawed and efficiencies from economies of scale may prove elusive. In many cases, the problems associated with trying to make merged companies work are all too concrete.


India's mobile telecom sector is one of the fastest growing sectors. Unlike in the 1990s when the mobile phone was an elitist product, mobile operators now tap a mass market with mass marketing techniques. "Unified licensing" rules allow basic and mobile operators into each other's territory, and have ushered in perhaps the final phase of industry consolidation.

It seems that only companies with deep pockets can effectively compete as primary operators mobile markets. Economies of scale, scope, and end-to-end presence in long-distance as well as local telecom, are desirable. There are, besides, new challenges. Operators are having to find new growth drivers for the wire line business. There are problems of getting broadband to take off, of technology choice, of when to introduce new technologies, and of developing a viable business model in an era of convergence. This report analyses the changing features, opportunities and challenges facing the basic and mobile telecom services business. It covers the regulatory environment, markets, new services and revenue sources, tariff structures, economics of the industry, investment and technology issues, and the current and emerging competitive environment. Growth of mobile technology India has become one of the fastest growing mobile markets in the world. The mobile services were commercially launched in August 1995 in India. In the initial 5-6 years the average monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05.

Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in the early years because of the high price of hand sets as well as the high tariff structure of mobile telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer initiatives. Mobile subscriber additions started picking up. The number of mobile phones added throughout the country in 2003 was 16 million, followed by 22 millions in 2004, 32 million in 2005 and 65 million in 2006. The only countries with more mobile phones than India with 156.31 million mobile phones are China 408 million and USA 170 million. India has opted for the use of both the GSM (global system for mobile communications) and CDMA (code-division multiple access) technologies in the mobile sector. The mobile tariffs in India have also become lowest in the world. A new mobile connection can be activated with a monthly commitment of US$ 5 only. In 2005 alone 32 million handsets were sold in India. The data reveals the real potential for growth of the Indian mobile market. Next generation networks In the Next Generation Networks, multiple access networks can connect customers to a core network based on IP (internet protocol) technology. These access networks include fibre optics or coaxial cable networks connected to fixed locations or customers connected through wi-fi as well as to 3G networks connected to mobile users. As a result, in the future, it would be impossible to identify whether the next generation network is a fixed or mobile network and the broadband wireless access would be used both for fixed and mobile services. It would then be futile to differentiate between fixed and mobile networks both fixed and mobile users will access services through a single core network. Indian telecom networks are not so intensive as developed countrys telecom networks and India's teledensity is low only in rural areas. 670,000 route kilometers of optical fibres has been laid in India by the major operators, even in remote areas and the process continues. A rural network based on the extensive optical fibre network, using Internet Protocol and offering a variety of services and the availability of open platforms for service development, viz. the Next Generation Network, appears to be an attractive proposition. Fibre network can be easily

converted to Next Generation network and then used for delivering multiple services at cheap cost.

Cellular Service Providers As on Apr 2007 India has 167 million mobile phone subscribers. Out of this 125 million are GSM users and 41 million CDMA users. BSNL, Bharti Airtel, Hutch, Idea, Aircel, Spice and MTL are the main GSM providers in India. Reliance Communications and Tata Indicom are the main CDMA providers in India. Bharti Airtel Airtel is providing cellular services in Delhi, Mumbai, Kolkata, Chennai, Andhra Pradesh, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Goa, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West Bengal. Airtel is the No.1 cellular service provider in India using GSM technology. Airtel has 23% market share in India with a total subscriber base of 38 million. Reliance Communications Reliance has both CDMA and GSM networks and total subscriber base of 29 million or 17% market share. It has GSM network in Assam, Bihar, Himachal Pradesh, Kolkata, North East, Madhya Pradesh, Orissa and West Bengal. Reliance has CDMA networks in other states and cities. Bharat Sanchar Nigam Limited (BSNL) BSNL is a state owned telecom company which has GSM presence in almost every cities and towns. BSNL has 27 million subscribers with a market share of 16%.

Hutch Hutch is another emerging GSM provider in India with coverage in Kerala, Mumbai, Delhi, Kolkata, Chennai, Gujarat, Andhra Pradesh, Karnataka and Punjab with a total subscriber base of 27 million. Tata Indicom Tata Indicom is a main CDMA provider in India with 16 million subscribers all over India. Tata Indicom has presence in almost every states and cities in India The leading cellular service providers have the following number of subscribers: Service Provider No. of CDMA Subscribers No. of GSM Subscribers

Reliance Tata Airtel MTNL BSNL Hutch Idea Spice BPL Aircel

2.75 crores 1.07 crores

38.76 lakhs

3.37 crores 24.98 lakhs 2.44 crores 2.44 crores 1.3 crores 25.56 lakhs 10.62 lakhs 48 lakhs

Bharti Airtel has the largest customer base with 31% market share, followed by Hutch and BSNL with each holding 22% market share. The 2007 budget has brought further relief to the customers with the reduction in the tariffs, both local and long distance, and with slashing down the roaming rentals. This is likely to lead to even more people going for cellular services and more and more use of the value added services. However, landline telephony is likely to remain popular, too, in the foreseeable future. MTNL, the largest landline service provider, has recently taken some bold initiatives to retain its market share and, if possible, expand it.

Revenue and growth The total revenue in the telecom service sector was Rs. 86,720 crore in 2005-06 as against Rs. 71, 674 crore in 2004-2005, registering a growth of 21%. The total investment in the telecom services sector reached Rs. 200,660 crore in 2005-06, up from Rs. 178,831 crore in the previous fiscal. Telecommunication is the lifeline of the rapidly growing Information Technology industry. Internet subscriber base has risen to 6.94 million in 2005- 2006. Out of this 1.35 million were broadband connections. More than a billion people use the internet globally. The value added services (VAS) market within the mobile industry in India has the potential to grow from $500 million in 2006 to a whopping $10 billion by 2009 (Music, games to drive mobile VAS growth).

Merger or Acquisition in TELECOM Sector in India

Vodafone Hutch Indian Telecom Industry: One of the fastest growing sectors in the country, telecommunications has been zooming up the growth curve at a feverish pace in the past few years. The year 2007 saw India achieve the distinction of having the world's lowest call rates (2-3 US cents), the fastest growth in the number of subscribers (15.31 million in 4 months), the fastest sale of a million mobile phones (1 week), the world's cheapest mobile handset (US$ 17.2) and the world's most affordable colour phone (US$ 27.42). Trends

Indian telecommunication firms added 5.19 million new subscribers in April 2007, taking the total user base above 212.02 million.

Wireless service providers continued to dominate user growth by adding 5.15 million subscribers in April, while 40,000 new fixed-line users signed up.

At 500 minutes a month, India has the highest monthly 'minutes of usage' (MOU) per subscriber in the Asia-Pacific region.

India is emerging as a forerunner in using the cell phone as a tool to access the Internet, with one in every 11 people logging on to the web across the world through mobiles turning out to be an Indian.

The country's telecom sector will see investments up to US$ 25 billion over the next five years, projects global consultancy firm Ernst & Young.

India is expected to register handset production of over 51 million units in 2007 to record the highest growth in the Asia-Pacific region, according to technology research firm Gartner.

India produced nearly 31 million mobile phones in 2006 worth about US$ 5 billion. The production of handsets is set to increase by 68 per cent in units and 65 per cent in value terms in 2007. By 2011, production volumes are expected to reach nearly 95 million units at a compound annual growth rate (CAGR) of 25 per cent.

The retail market for mobile phones -- handsets, accessories and airtime -- is over US$ 15.6 billion and growing at the rate of 15-20 per cent.

Massive infrastructure needs in India might provide a potential private equity role. A recent study by telecom regulator Telecom Regulatory Authority of India (TRAI) has estimated that the country will need about 350,000 telecom towers by 2010, as against 125,000 in 2007.

With a CAGR of 46 per cent, India has emerged as the fastest growing market in the data centre-structured cabling market in the Asia Pacific region, according to Access Markets International (AMI) Partners, a US-based consultancy agency. The data centre structured cabling market is expected to grow from US$ 19 million in 2005 to US$ 125 million in 2010. The overall structure cabling market is expected to grow from US$ 127 million in 2005 to US$ 345 million by 2010 at a CAGR of 22 per cent. .

In May 2007, Indian GSM mobile phone service providers signed up 5.1 million customers, taking total users to 130.6 million, the Cellular Operators' Association of India said.

The combined revenue of all operators from their mobile businesses would more than double to US$ 33.1 billion by 2010, from about US$ 12.8 billion in 2006.

The total revenue of all telecom operators is also set to nearly double to US$ 43.6 billion in four years, from US$ 22.5 billion in 2006. The revenue share of mobile business would rise to 76 per cent in the same period, from 57 per cent currently. India, which is adding over six million mobile subscribers every month, has surpassed Russia to become the third largest mobile market in the world after China and the US. The total mobile subscriber base in the country is likely to reach 425 million by March 2010 with Bharti Airtel (GSM) and Reliance (CDMA and GSM) emerging as the top two mobile operators in terms of number of subscribers.

The mobile industry should continue its strong growth. The countrys telecom regulator, the TRAI, says that the rate of market expansion would increase with further regulatory and structural reform. The adoption of Unified Licensing, a change in the Access Deficit Charge regime, increased sharing of infrastructure and coverage of new areas by operators will contribute to ongoing growth.

A very large market with significant growth potential

India is the worlds 2nd most populated country

.. where the mobile penetration

remains low

Population (Dec-06)
1318 1400 1116 1200 1000 (m) 800 494 600 400 200 0 300 189 143 127

Mobile Penetration (% as of Dec-06)

120 100 80 (%) 60 40 20 0

108 107 78

77 54 41 13

Penetration expected to exceed 40% by FY2012 and exceed 50% in the longer term

Source: Informa, Analyst consensus.

The Indian telecom industry has lots of scope as only 13% of the mobile market is penetrated and it still has a vast potential which is untapped. When this untapped mobile market is

compared with the growing population the scope further widens as India is the 2nd most populous country in the world.

1.1 Indian Mobile Market

Circle by- Circle Breakdown Key Facts







territories or CIRCLES for the purpose of mobile service.

Circles are categorized as follows power) Metros ( 4 largest cities ) A circles (state with highest earning

B Circles C Circles (state with least earning )

Each Circle typically has 5-6 Operators. Private GSM Operators on 900MHz. 1 Government Owned GSM Operator (BSNL/MTNL) 1 active private GSM operator on 1800MHz 1-2 CDMA operators on 800MHz.

2. History of Hutch

Hutchison Telecom is a global provider of telecommunications services. It has significant presence in nine countries and territories, and are market leaders in many of them. Hutch currently offer mobile and fixed-line telecommunication services in Hong Kong, and operate or are rolling out mobile telecommunication services in Macau, India, Israel, Thailand, Sri Lanka, Ghana, Indonesia and Vietnam. Hutch was the first provider of 3G mobile services in Hong Kong and Israel and operates brands including Hutch, 3 and Orange.

Overall, the offer encompasses voice services (including a range of enhanced calling features), broadband data and multimedia services, mobile and fixed-line Internet and intranet services, IDD and international roaming services, bandwidth services and data centre services.

Together with its regional partners, Hutchison Telecom is a key player in the multimarket telecommunications industry, with a growing customer base of about 30 million as of 31 December 2006

2.1 Strategies of Hutch

The guiding strategy of Hutch is to focus on mobile telecommunications services markets which offer the best growth potential. Hutch enters these markets either through greenfield developments or by acquisition, and brings our strengths in network and product development, branding and customer service to create market leaders.

Hutch believes that a combination of strong economic growth and favorable demographic profiles in these markets will result in sustained growth in demand for our services. Many of its markets are still significantly under-penetrated, and offer tremendous scope for future growth. For example, in India the combination of vast population and a very low penetration rate creates an enormous growth opportunity for accessible and affordable mobile services.

Elsewhere - most notably in Hong Kong and Israel - the penetration of mobile services has reached higher levels. As an early developer and market leader in 3G technology, Hutch is ideally positioned to benefit from these trends. The companies that comprise Hutchison Telecom enjoy a leading position in many of the markets in which Hutch operate.

In all its markets, Hutch will leverage its experienced management team and our trackrecord of successfully developing and operating mobile telecommunications businesses to continue to grow and diversify our turnover and profits. In addition, Hutch will continue to

selectively acquire or invest in new businesses, in new markets as well as in countries where Hutch is already present.

2.2 The Evolution of Hutch Essar

1992 : Hutchison entered India in partnership with Max 1994: C. Sivasankaran sells 51% stake in Delhis sterling cellular to Essar Group 1995: Hutchison max mobile goes live in Mumbai; Essar Cellphone Starts Service in Delhi 1996:Swisscom sells 49% stake in Essar cell phone to Hutchison 1998: Max Analjit Singh sells 41% stake in Hutchison Hong Kong 2000: Hutchison acquires 49% stake in sterling cellular buys Kolkatas Usha Martin Telecom 2001: Hutchison Buys 49% stake in Gujarats Fascel gets license for Karnataka & Chennai 2003: Aircell Digling becomes part of hutch 2004: Essar picks France Telecom 9.9% Stake in BPCL Communication 2005: Hutchison Essar signed an agreement to acquire BPL for Rs.4400 crores and Essar Spacetel, paving the way for nationwide coverage in India. Essar Telecommunication holdings buys Max Telecom ventures 3.16% stake in Hutchison Essar for Rs 657crore. Orascom Telecom became a shareholder in Hutchison Telecom

2006: Hutchison Essar received licences to operate in six new licence areas, positioning it for pan-India coverage.Kotak sells 8.3% stake to Analjit Singh for Rs 1019crore. Hinduja sells 5.11% stake to Hutch for $450 million. Hutchison wants to exit.

2. 3 Why is Hutch ready to sell?

Hutch is ready to sell its stake in Hutch Essar, India due to the following reasons: To help recoup its investment in 3G in mature markets - Hong Kong and Israel Tussle between Essar and Hutchison:There were also differences between Hutchison and Essar over the merger of BPL Mobile with Hutch. The Essar Group acquired BPL Mobile and merged it with Hutch Essar to raise its stake in the latter to 33 per cent. Some differences over valuations and sorting out regulatory hurdles in the key Mumbai telecom circle are believed to have contributed to the dispute. Enterprise Value is 22-24 times is EBIDTA in as compared to its investment initially.

3. Potential Suitors for the Bid

Suitor # 01: Vodafone Arun Sarin, CEO Background: Largest mobile company - 29 billion Financial Health: Huge revenues - 29.35 billion in 2006, Net Loss of over 21.8 billion - under fire from shareholders Presence: Across 26 countries. Partner networks 34 countries, Subscriber base of 190 million Why is Hutch-Essar important: Limited presence in Asia: 3.3% in

China, Other markets like the UK, Germany and Australia saturated.

Suitor # 02: Reliance Communication Anil Ambani, Chairman Background: Hutchison Essar fit well , commitments from large banks, teaming with Carlyle Group. Financial Health: Third Quarter 2006-07 revenues of Rs. 3.525 crore, PAT 702 cr. Presence: CDMA -21 circles, 25 million subscriber base. GSM 3.5 million subscriber in 8 circles. Why is Hutch-Essar important: Undisputed leader in India 50 million subscribers. Save $ 5 billion on capex and opex 5 years Suitor # 03: Ruia Ravi Ruia, Vice Chairman Background: Flagship business is steel, refinery, just started operations early entrant into cellular telephony, decade experience. 33% stake in HEL. Financial Health: Steel and refining expected to generate Rs 4500050000 cr Presence: 16 circles vis HEL.

Why is Hutch-Essar important: Headstart with 33% holding, secure best valuation Suitor # 04: Maxis Jamaludin Ibrahim, CEO Background: Malaysia's largest operator 7 million subscribers, $ 13.5 billion 100% Hutch-Essar buyout said to have dropped out of the race. Financial Health: 2004-05, revenues stood (Rs. 8,060 cr) PAT (Rs. 2,164 cr)

Presence: Malaysia, Indonesia and in India via Aircel 74% stake

Why is Hutch-Essar important: Indian operation 7 circles, subscriber base 4.2 million. Suitor # 05: Hinduja Ashok Hinduja, Executive Chairman Background: Held 5.11% stake in Hutch-Essar, sold in mid 2005-06 for $ 450 million Financial Health: Revenues of $ 11 bn, raising cash is no problem Presence: No global presence, 5.11% stake was a courtesy the Hindujas presence in Gujrat circle. Why is Hutch-Essar important: Looking at (finally) expanding in India, biggest opportunity in Indian Telecom Suitor # 06: Verizon Wireless Ivan Seidenberg, Chairman and CEO Background: USs Second Largest cellular operator, CDMA technology, 57 million customers, 44% JV with Vodafone . Financial Health: Revenues of $ 32.3 billion, Operating income of $ 7.38 billion. Presence: Restricted to US.

Why is Hutch-Essar important: Any presence outside a saturated US market is welcome

4. Vodafone Details

The beginnings of Vodafone can be traced to a small UK company called Racal Electronics that was founded in 1985. The chronological history of Vodafone can be inferred as under: It is the largest mobile operator in the world with barely any presence in India. Vodafones presence was via a minority stake in Indias Bharti Airtel. If Vodafone needs to maintain its competitive edge it was very clear that they needed to have a clear and identifiable India strategy. Buying Hutch Essar gives Vodafone instant access to about 23 million mobile users in India. Building such a big user base would have taken Vodafone a long time to build. As one analyst said that Vodafone paid a high price for the strategic value of Hutch Essar and that is the key to understanding Vodafones India strategy.

Vodafone can now bring its expertise and services from other countries to India. Over the past couple of years Vodafone has sold its stake in Europe and Japan and refocused its energy in countries where mobile and telecom services are on a huge growth curve. These countries include Turkey, Egypt, South Africa and that trend clearly shows that Arun Sarin, a seasoned telecom expert knows where the future revenue streams for his company is located.In order for Vodafone to scale it needs to resolve and come up with solutions for the infrastructure bottlenecks in India. Bharti Airtel and Vodafone are reportedly going to share their network infrastructure. This sharing of network will help Airtel and Vodafone penetrate into the rural areas, where Bharti Airtel is spending about a couple of billion dollars this year.

Why India?
19% CAGR

$43.6 Bn

2006-2015 real GDP growth

8 7 6 5 4 3 2 1 0



$22.5 Bn 3
3.4 2.8 2 1.1

11 20


3 3 7


2006-2015 real GDP growth (%)


CY 2010

Mobile Voice, Mobile Data, Fixed Voice, Fixed Data

India being the second largest growing economy and also the telecom markets are growing at a faster pace. The sustained economic and telecom market are the major drives for Vodafone to enter the Indian Emerging Market.

4. 2 If India, then why eyeing ONLY Hutch?


Customers 000s








Market share 22.8 (%) No Circles/total Technology GSM of 23/23



















Vodafone eyed Hutch for the following reasons: The 2nd Largest customer base i.e. following BSNL (PSU)

It decent market share, though not in the top three. But acquiring the top three market share leaders was just not possible. No. of circles covered by Hutch also made a lot of difference as the penetration level in the mobile market is an important criteria for any telecom company in todays competitive scenario. This means there was not immediate necessity to spend on the infrastructure requirements. The technology under Hutch purview was GSM, which was a perfect fit for Vodafone.

The other reason for Hutch being targeted by Vodafone is as under: Subscribers 22. 27 million 16.39% of mobile market; biggest private GSM operator after Bharti New Subscribers 1 million every month Just behind market leader Bharti ARPUs* Rs. 374 Just behind market leader Bharti Circles 16 11.65 % over national GSM average Revenues Rs. 5,800 cr Present in all top circles

* ARPUs Average revenues per user

5. Hutch Vodafone Synergy Hutch-Essar has a strong presence in India so Vodafone would have a strong base. These are the following ways Vodafone will capitalize on the Hutch-Essar position:

5.1 Distribution: They have very big advantage in terms of distribution as they have 1800 branded shops all over India & still the previous owners of HTIL was aggressively expanding the distribution network. The model of hutch consists of 1000 exclusive dealers for contract & 300,000 retail outlets for prepaid. Now Vodafone will capitalized more on these aggressive strategy by investing more on the existing model develop by hutch. Accelerate distribution rollout in line with network roll out plans Proven retail experience in over 7000 retail stores globally Vodafone is a world class brand & the brand name will help Vodafone. 5.2 Network: Overall coverage of Indian population below 40% today Network performance comparable to major competitors in Hutch Essar 16 circles-Hutch Essar network fully EDGE enabled BPL 3 circles: continued aggressive roll out of network Spacetel 6 circles: secure spectrum, build network and launch service Complete nationwide fibre backbone 27,000 km today 5.3 Infrastructure: Infrastructure sharing MOU with Bharti to enable industry leading cost structure for sites. MOU outlines a process for achieving a more extensive level of site sharing sharing of tower, shelters, civil works, back-up diesel generators, power supply and air conditioners separate electronics, spectrum and backhaul transmission benefits expected to commence during 2007 MOU covers both new and existing sites Around 1/3 of current Hutch Essar sites shared with other Indian mobile operators Longer term anticipated to result in approximately 2/3 of total sites shared

Significant capex and opex savings achievable for Hutch Essar US$1bn opex and capex savings over first 5 years opex saving improves EBITDA margin by c.1.5%

5.4 Targeted sharing of active infrastructure: Current regulatory consultation on broader infrastructure sharing to support rural areas and teledensity target MOU with Bharti envisages the scope to include active infrastructure sharing potential to extend agreement to sharing of radio access network and access transmission Potential significant additional savings on capex and opex

5.5 Brand: The Hutch brand is across 16 circles: Strong consumer focus Recognized major business brand

6. Operational Plan for Hutch Essar Vodafone will execute an operational plan to build on the strengths of Hutch Essar in order to capture the Indian telecom growth opportunity.

6.1 Key strategic objectives In the context of penetration that is expected to exceed 40% by FY2012, Vodafone is targeting a 20-25% market share within the same timeframe. The operational plan focuses on the

following objectives: Expanding distribution and network coverage Lowering the total cost of network ownership, Growing market share, Driving a customer focused approach

6.2 Site sharing The MOU outlines a process for achieving a more extensive level of site sharing and covers both new and existing sites. Around one third of Hutch Essar's current sites are already shared with other Indian mobile operators and Vodafone is planning that around two thirds of total sites will be shared in the longer term. The MOU recognises the potential for achieving further efficiencies by sharing infrastructure with other mobile operators in India. The MOU envisages the potential, subject to regulatory approval and commercial development, to extend the agreement to sharing of active infrastructure such as radio access network and access transmission. 6.3 Customer Focused Approach Hutch Essar Management Team that build the business Highly experienced and Vodafone Value Add Proven expertise in integrating and Proven working with local

customer focused management Senior Team team Good Cultural fit Strong Challenger mentality

management teams best practice to and

benchmarking change


Potential for specific skills injection e.g. CRM/Data Recognized industry leader Comprehensive approach across Customer Service Invest and innovate to maintain industry leading capabilities

call centres, retail, internet, and Introduce proven CRM and automated systems Industry leading based process on customer expertise management


extensive customer research First stage nationwide Customer insight systems consolidation complete for 16 Purchasing scale benefits circles IT Single billing system in 2007 Capacity upgrades for all key systems incl. data warehouses. CRM and billinl

6.4 Financial assumptions As part of the operational plan, Vodafone expects to increase capital investment, particularly in the first two to three years, with capex as a percentage of revenues reducing to the low teens by FY2012. The operational plan results in an FY2007-12 EBITDA CAGR percentage around the mid-30s. Cash tax rates of 11-14% for FY2008-12 are expected due to various tax incentives and will trend towards approximately 30-34% in the long term. As a result of this operational plan, the transaction meets Vodafone's stated financial investment criteria, with a ROIC exceeding the local risk adjusted cost of capital in the fifth year and an IRR of around 14%.

6.5 Financial impact on Vodafone The transaction enhances Vodafone's growth profile on a pro forma statutory basis, with Vodafone's revenue and EBITDA CAGR increasing by around one and a half % points over the three year period to 31 March 2010.

The transaction is expected to be broadly neutral to adjusted earnings per share in the first year post acquisition and accretive thereafter excluding the impact of intangible asset amortization for the transaction. Including this impact, the transaction is expected to be

approximately seven percent dilutive to adjusted earnings per share in the first year post acquisition and neutral by the fifth year.

The Board remains committed to its longer term targeted dividend payout of 60% of adjusted earnings per share. Furthermore, the Board expects the dividend per share to be at least maintained in the short term. The acquisition of HTIL's controlling interest in Hutch Essar will be financed through debt and existing cash reserves and Vodafone expects pro forma net debt of around 22.8-23.3 billion3 at 31 March 2007 as a result of this transaction.

6.6 Further transaction details HTIL's existing partners, who between them hold a 15% interest in Hutch Essar, will retain their holdings and become partners with Vodafone. Vodafone's interest will be 52% following completion and Vodafone will exercise full operational control over the business. Essars acceptance to Vodafones offer, these local minority partners between them will increase their combined interest in Hutch Essar to 26%. In the event that the Bharti group company exercises its option over Vodafone's 5.6% direct interest in Bharti, consideration will be received up to 18 months after completion of the Hutch Essar acquisition.

Vodafone will continue to hold its 26% interest in Bharti Infotel Private Limited ('BIPL'), which is equivalent to an indirect 4.4% economic interest in Bharti. Vodafone will now account for its entire interest as an investment. UBS Investment Bank acted as financial adviser to Vodafone.

6.7 Future Expectations

Penetration by circle category (Dec-06) 60 40



20 0

Avg Mkt Share (%)

Nationwide penetration is currently at 13%, which is expected to exceed 50% in longer term.

Also the market share of Hutch has spread across quite consistently which has a 20-25% market share.

7. How Vodafone Acquired HUTCH:

7.1 : 20th Dec 2006 : Vodafone decides to go for Hutch: Vodafone has also emerged as an interested party, along with the Ambanis, the Mittals of Bharti Airtel, the Ruias, and Maxis for the acquisition of Hutchison's 67-per cent stake reports CNBCTV18.Sources indicate that Vodafone wants a larger play in India.However, it hasn't found it easy to increase its stake in Bharti and therefore, Vodafone may turn to Hutch. At present, Vodafone holds 10-per cent stake in Bharti. It is also believed that Essar cannot have the first

right of refusal when it comes to a foreign entity hence Vodafone may not have to go through the rigour of getting Essar's apporoval.

7.2 : 22nd Dec 2006 : Vodafone Announces Interest in Hutch Essar : Vodafone, the largest telecom company globally in revenue terms, today formally announced its interest in acquiring a controlling interest in Hutchison Essar Limited, India's third largest GSM mobile telecom operator. The Vodafone board had met yesterday in London to consider a bid and has reportedly authorised CEO Arun Sarin to pursue the deal.

7.3: 28th Dec 2006 : British telecom firm Vodafone has submitted its bid for cellular services operator Hutchison Essar. The report, quoting sources said to be involved in the negotiations, says Vodafone's bid puts a value of "at least $17 billion" on Hutchison Essar. Essar Offer : Essar, which holds a third of Hutchison Essar, has offered to buy Hutchison's 55per cent stake at a similar price. Verizon and Hindujas join the race.

7.4: 8th Jan 2007 : Vodafone appoints Ernst and Young to conduct Due Diligence , while Essar is busy moving court for its First Right of Refusal.

7.5 : 9th Jan 2007 : Essar joins the race. Essar, which has a 33-per cent stake in Hutch Essar Ltd (HEL) has three directors on the JV company's board and thus access to all the operational, infrastructural and financial information about the joint venture, said it did not need to study the books. Appoints Citibank, Morgan Stanley, Standard Chartered, Merrill Lynch and Lehman Brothers - for the deal.

7.6 : 9th Feb 2007: Deadline set for submitting the Bid.

7.7 : 12th Feb 2007 : Finally, Vodafone is all set to establish a major presence in the world's fastest growing and the most promising telecom market. Vodafone emerged as the highest bidder for Hutchison Essar in the bidding process, which concluded last Friday. The telecom major has agreed to acquire the stake held by Hong Kong-based Hutchison Telecom International (HTIL) and its associates in Hutch-Essar. The deal was finalised by the HTIL board on Sunday and an agreement has been signed, bringing the deal close to completion after nearly three months since HTIL announced its decision to exit Hutch-Essar. Vodafone would buy out HTIL and its associates, who hold a combined 67- per cent stake, in Hutch-Essar for $11.1 billion in cash. It would also assume Hutch-Essar's net debt of $2 billion, taking the enterprise value to $18.8 billion. The final deal size is smaller than $21 billion the amount speculated to have been set by HTIL as the minimum enterprise value. Vodafone expects the acquisition to be earnings accretive after five years. 7.8 : 16th Feb2007 : Offer to Essar to sell off its stake in Hutchison-Essar on same terms it offered Hutchison Telecom. 7.9 : 13th March 2007 : DoT clears Vodafone-Hutchison deal The communication and IT ministry is believed to have informed the Foreign Investments Promotion Board (FIPB) that it had no objection to Vodafone's acquisition of equity in HutchEssar and feels. It also says that it is the finance ministry that is better equipped to look into FDI aspects in the deal.DoT officials say that from their view was that the deal was FDI compliant

7.10 :13th march 2007: Vodafone Essar deal.

7.11 : 27th April 2007 : Maran gives clean chit to Hutch-Vodafone ahead of FIPB meeting. Communication and IT minister Dayanidhi Maran has given a clean chit to the Hutch-Vodafone deal, saying there was nothing wrong with the transaction, even as the foreign investment promotion board is due to meet on April 27 to finalise the licensing conditions. FIPB is currently

looking into the alleged violation in FDI limit in the Hutch-Vodafone deal, a senior government official said.

7.12 : 4th May2007 : British telecom giant Vodafone's acquisition of a majority stake in HutchEssar cleared the last hurdle with finance minister P Chidambaram giving his nod for the deal, hardly a week after the foreign investment promotion board (FIPB) gave its green signal.

7.13 : 9th May2007 : Vodafone pays Hutch. Europe's largest telecom operator, Vodafone Plc, has paid a discounted price of $10.9 billion in cash for mobile firm Hutch-Essar to complete its acquisition of Hutchison Telecom International Ltd's (HTIL) majority stake that gives it access to the rapidly growing Indian market to counter saturation in European markets. The final price is a reduction of $180 million from the originally agreed price of $11.08 billion, which reflects retention and closing adjustments as agreed with Hutchison. The adjusted price includes provisions for a previously announced settlement pact with Indian partner Essar. It also includes $352 million retention by Vodafone toward cost and expenses associated with the transactions. The net cash inflow to HTIL before payment of the settlement amount is about $10.83 billion. HTIL is expected to have an estimated pre-tax gain from the stake sale to be approximately $9 billion. HTIL is expected to declare a special dividend of $HK6.75 per share following the completion of the transaction. 7.14 : 19th September2007 : It's a dog's life: Hutch's pug survives, the brand goes Finally, Hutch is now, officially, Vodafone-Essar. The brand migration from Hutch to Vodafone was completed on Wednesday, with the pug that endeared the mobile company to the hearts of its consumer, having survived the re-branding exercise as its brand ambassador.

The re-branding marks one of the final steps in the completion of the acquisition that took place in May 2007. In July 2007, the company was renamed Vodafone- Essar.

India is now the 26th country where Vodafone has operations. Vodafone operates across five continents, with 40 partner networks, serving over 200 million customers worldwide.

8. Vodafone Essar Deal: British mobile carrier Vodafone Group PLC and the Essar Group have reached an agreement to jointly manage mobile phone company Hutch-Essar and rename it Vodafone Essar. Vodafone chief executive Arun Sarin and Essar vice chairman Ravi Ruia signed the partnership deal in New Delhi. The two would announce the partnership at a joint press conference.Under the terms of the partnership agreement, Vodafone would have operational control of Vodafone Essar and Ruias would have rights, such as board representation, in accordance with their 33 per cent equity. Ravi Ruia is likely to be appointed chairman of Vodafone Essar board, while Sarin would be named vice chairman. Seven of the 12 directors would be Vodafone nominees, while Essar would have four. Analjit Singh, who along with Hutch-Essar CEO Asim Ghosh owns a 15-per cent stake, would also be on the board. Singh had started the company as Hutchison Max, before selling out to Hutchison Whampoa's HTIL.Vodafone, the world's largest mobile phone company, last month won a $11.1-billion bid to buy a controlling 67-per cent stake in Hutchison Essar, a joint venture between Hong Kong-based Hutchison Telecommunications International Ltd. and the Essar group.

Vodafone is buying for cash the 52 per cent equity held by Hutchison Telecom and a combined 15 per cent stake owned by Singh and Ghosh. HTIL's existing Indian partners Asim Ghosh, Analjit Singh and Infrastructure Development Finance Company Ltd (IDFC) have agreed to remain minority partners with their collective 15.03 per cent stake. Hutchison Telecommunications International Ltd. said it would pay the Essar group $373.5 million at the close of the transaction to sell its stake in its Indian joint venture to Vodafone.

9. Pre Acquisition Scenario Hutch Essar, India's second largest mobile phone services provider, which currently has 22.3 million subscribers and Rs. 5,800 crore in revenues ($1.3 billion). Active bidders included the world's largest mobile telecommunications company Vodafone, the Anil Ambani-led Reliance Communications and the Hinduja Group. Verizon Wireless of the U.S. is also in the kicking the tires of a potential deal. Others in the fray were Japan's NTT DoComo, Egyptian telecom operator Orascom and other big-name investment banks, including Goldman Sachs, Blackstone and Texas Pacific. Hutch Essar's valuation has doubled to $20 billion -- the enterprise value that Hong Kong parent Hutchison Whampoa likes for its 67% stake with partners. The other 33% is owned by the Ruias of the Mumbai-based Essar group, who seem open to either running the entire company themselves or in partnership with others.At first sight, it seems obvious why Hutch Essar's valuations climbed so rapidly to such high levels. India's current high economic growth makes it an attractive market for foreign investors. Also, it is not every day that one gets to control a big player in a tightly-regulated policy environment where entry barriers are high.What's more, the country's mobile phone subscriber base is adding six million new subscribers each month and fast approaching 200 million, or a tenth of the world's subscribers.

At least two theories are floating around as to why Hutchison Whampoa wants to sell its stake in Hutch Essar. One is that the company badly needs the cash since it has committed up to $30 billion in investments across Europe. The other is that Li Ka-Shing, the Hong Kong-based shipping and real estate baron who controls Hutchison, wants to cash out. He is a fairly astute entrepreneur and, in the past, he has been known to sell when he thinks valuations have maxed out. Fresh problems arose over Vodafone's deal to acquire Hutchison-Essar, India's fourth-largest mobile service provider, from Hong-Kong-based Hutchison Telecom International, with the

Department of Telecommunications raising questions about the indirect shareholdings by Asim Ghosh and Analjit Singh. The DoT has said Ghosh and Singh's 12.26 per cent shareholding in Hutchison-Essar may have to be included as foreign direct investment if it is held by offshore entities.Thus DoT's views suggest that Hutchison-Essar's shareholding pattern could violate the FDI cap of 74 per cent for telecom service companies. The department's view is also in line with that of the Joint Intelligence Committee in the National Security Council Secretariat, which has said that Hong Kong was a "country of concern" in terms of national security and the deal needed fresh scrutiny since the company's former major shareholder was based in Chinese territory.

In view of the JIC's comment, the DoT has suggested that Vodafone Plc should be asked to make full disclosures of its projects, joint ventures, branches, business interests and collaborations in all other countries, to help the process of security vetting ahead of an FIPB approval.The DoT's objections come soon after the Reserve Bank of India said that HTIL's deal with Ghosh and Singh violated provisions of the Foreign Exchange Management Act, a view that has been strongly contested by the two shareholders. The deal has been referred to the law ministry.The department conveyed its opinion on March 28 to the Foreign Investment Promotion Board, which is scrutinising an application of February 23 by UK-based Vodafone, the world's largest telecom company, to acquire a direct and indirect interest in Hutchison-Essar from HTIL.

HTIL controlled a 52 per cent interest, which was recently bought by Vodafone, and claimed an indirect interest through Ghosh and Singh's shareholding, taking its interest to a little over 67 per cent (this includes a 2.7 per cent stake held by IDFC). Hutch used its credit facilities of $124.5 million and $200 million for arranging two loans of Rs 489 crore (Rs 4.89 billion) and Rs 792 crore (Rs 7.92 billion), respectively, for Ghosh and Singh to buy the entire stake of Kotak group.

While Ghosh brought 4.68 per cent, Analjit Singh purchased 7.58 per cent stake. The RBI will examine whether these loan agreements between HTIL and Ghosh-Singh duo violated any FEMA or ECB guidelines, and the FIPB would look into whether the stake purchase by Singh and Ghosh violated FDI cap of 74 per cent in telecom sector, the official said.

Complications have arisen because Hutchison-Essar's Indian partner, the Essar group, has 22 per cent of its 33 per cent stake in the company through overseas entities. Therefore, if Ghosh and Singh's shareholding were counted as foreign shareholding, the total FDI in the company would be 89 per cent. The DoT's objections follow questions raised last month by the FIPB and the Reserve Bank of India over the shares held by Ghosh, Hutchison-Essar managing director, and Singh, promoter of healthcare and insurance conglomerate Max India, on behalf of HTIL (and now Vodafone) through a complex pattern of offshore companies.

FIPB clears Vodafone-Hutch deal: After deferring its decision thrice, the Foreign Investment Promotion Board (FIPB) has finally given a clean chit to the $11.1 billion Vodafone's takeover bid of Hutchison-Essar paving the way for the British telecom giant to mark its entry to the world's fourth largest and Asia's second fastest growing mobile market. The approval, April 27, however, has come with a condition: the minority shareholders in the new venture can only sell their stakes to Indian residents.

The decision is expected to have a long-term impact not only in the telecom sector, which will witness the entry of the world's largest mobile operator, Vodafone, into India, but also in other sectors where the government has imposed limits on foreign direct investments, such as insurance. "The approval will help in getting world-class services into Indian mobile telephony. Vodafone, the world leader in mobile telephony in terms of quality of service and new-

generation technology, will bring them to India," said Analjit Singh, chairman of the Max group who also owns 7.26 percent in Hutch-Essar, India's fourth largest mobile company. "It's cleared. We are fully satisfied with the compliance level. They (Vodafone) have to comply with the new guidelines laid out Press Note 3 pertaining to FDI in the telecom sector. The minority shareholders will have to inform the government before they sell their stakes," said Ajay Dua, secretary, department of industrial policy and promotion, after the Friday meeting of the FIPB.

In February, Vodafone had acquired Hutchison Telecommunications International Limited's (HTIL) 52 percent holding in the Indian company Hutchison-Essar, in which the Ruia-controlled Essar group is the junior partner with a 33 percent stake, 22 percent through a foreign holding firm. Following concerns expressed by some individuals that the transaction might violate FDI guidelines for the sector, the FIPB decided to examine the remaining 15 percent stake held in Hutch-Essar by development financial institution IDFC, Hutch-Essar Managing Director Asim Ghosh, and Max India Chairman Analjit Singh.

The FIPB had also sought the opinion of the Reserve Bank of India (RBI) and the Law Ministry on the issue of the complex shareholding pattern of Hutch-Essar and also sought clarifications about the options enjoyed by HTIL on the minority shareholdings. On Friday, FIPB announced that share holding of Asim Ghosh and Analjit Singh is Indian and that they cannot sell their existing shares to any foreign entity without government approval.

According to a government aide, the FIPB was of the opinion that 15 percent of the total holding in Hutch should remain with the Indians. A government aide said that the FIPB is satisfied with Vodafone's holding in the joint venture with Essar, which is at only 52 percent.

The government aide further said that the Vodafone-Essar deal would be sent for the Finance Minister's approval. Further, the FIPB has asked the government to review the FDI norms across sectors. Indian rules allow foreign ownership of up to 74 percent in a domestic telecom firm. Reacting to the FIPB's decision, Asim Ghosh said that he was delighted with the FIPB's decision, but was awaiting written clearance of the same. He went on to say that he never doubted whether

the shareholding in the company was his. Analjit Singh also said that he was relieved and delighted, but would like to see the decision in black and white before celebrating. He added that he was comfortable with the government's condition not to sell 15 percent stake to foreign companies.

"It looks as though the panel has recommended approval for our application to the finance minister and that is clearly welcome," said a Vodafone spokesman. "However we understand that it is for the finance minister to approve FDI (foreign direct investment approvals) and we will await his decision," he told AFP. Officials close to the deal said Finance Minister P. Chidambaram's approval was considered a formality. Vodafone plans to swap the Hutch brand in India with its own in due course, and aims to accelerate capital expenditure, promote low-cost handsets and introduce new services suited to India such as money transfers over mobile phones.

According to market analysts, the takeover deal was central to Vodafone's strategy of seeking new markets away from saturated developed countries. The British firm also owns a 10 percent stake in Hutch rival Bharti, but plans to sell 5.6 percent back to Bharti in a parallel deal to the Hutchison Essar transaction. The group will continue to own a 4.4 percent stake in an unlisted Bharti holding company.

It was earlier decided that Essar's vice chairman Ravi Ruia will be chairman of the new joint venture, while Vodafone's India-born chief executive Arun Sarin will be appointed vicechairman. Vodafone said it would invest $2 billion within two years in the Hutch-Essar mobile telecom venture to tap rural market, expand infrastructure and improve tele-density.

10. Present Scenario : Vodafone Essar moves behind Bharti Airtel, pushes BSNL to third spot Bharat Sanchar Nigam Ltd (BSNL), the country's top telecom PSU, has been pushed to No 3 slot in the global systems for mobile communications (GSM) subscriber base with Vodafone Essar taking the second spot behind top telco Bharti Airtel. While BSNL added only 1.55 million subscribers from the end of March to the end of July 2007, market leader Bharti has grown by 7.6 million and Vodafone Essar (earlier Hutch) by 6 million, according to the Cellular Operators Association of India (COAI). Idea Cellular and Aircel have added 2.99 million and 1.65 million users, respectively. Bharti's GSM market share has grown to 31.58 per cent in July-end from 30.59 per cent in Marchend.Vodafone has grown to 22.88 per cent from the 21.78 per cent earlier; BSNL to 22.59 per cent from 20.44 per cent; Idea to 12 per cent from 11.54 per cent; Aircel to 5.05 per cent from 4.54 per cent; and Spice to 2.32 per cent from 2.25 per cent. The market share of Mahanagar Telephone Nigam Ltd (MTNL) and BPL Mumbai have dropped from 2.26 per cent to 1.88 per cent and 0.88 per cent to 0.77 per cent, respectively.While BSNL operates in 21 out of the 23 circles in the country, Bharti operates in all 23 circles and Vodafone in 16. Idea is present only in 11 and Aircel in nine. BSNL was unable to add capacity for the past few months as its mega GSM tender got delayed. BSNL, however, recorded the second-highest month-on-month growth rate, after Aircel, in March, at 7.8 per cent. But, thereafter, the PSU slipped to the seventh position and has been there ever since. There are 141.74 million GSM subscribers in the country as of July end, up from 121.43 million at end-March.

Vodafone to pay tax on Hutch Deal: Contesting Vodafone's view that it had no obligation to pay tax on its deal to buy stake in HutchEssar, a senior government official today said the British firm was responsible to submit tax to the government. "Vodafone is payer in this case. So, it has a liability of payer," G C Srivastava, Director General (International Tax) in the Ministry of Finance, told reporters on the sidelines of an Assocham seminar here. Liability of payer and payee is different. Vodafone has a liability of payer, Srivastava said, indicating that Vodafone should have deducted tax at source before making payment to Hutchison and deposited it in the kitty of the government. The Income Tax deparment has sent a notice to Vodafone, seeking around 1.7 billion dollars in capital gains tax related to the sale of Hutchison Telecom International Ltd's 67 per cent stake in Hutch-Essar, now renamed Vodafone-Essar. However, the company has contested this notice and approached the Bombay High Court. Last week, Vodafone CEO Arun Sarin, who is also Vice-Chairman of Vodafone-Essar, had said the company was not liable to pay tax. "We are working with the Income Tax Department to sort this issue. Neither the Essar Group, nor Vodafone, nor Vodafone Essar is liable to pay taxes. It is the seller whoshould be taxed; and the seller is not one of the parties represented here," Sarin had said. In May, Vodafone Group Plc had paid 11.2 billion dollars to HTIL for acquiring controlling stake in Hutchison Essar.

How will India Benefit Vodafones entry

12. 1 Only operator in India integrated into an international mobile company International voice and data roaming Unique offers for multinational corporate accounts Access to proven product portfolio Mobile office expertise

12.2 Senior Management Team that built the business Highly experienced and customer focused management team Good cultural fit Strong challenger mentality Proven expertise in integrating and working with local management teams Proven best practice and benchmarking to accelerate change Potential for specific skills injection e.g. CRM/Data

12.3 Customer service Recognised industry leader Comprehensive approach across call centres, retail, internet, and automated systems Industry leading process improvement based on extensive customer research