How Vodafone's control of Hutch-Essar affects Bharti and Reliance

Vodafone's acquisition of Hutchison Whampoa's 67-per cent stake in Hutch Essar creates opportunities for Bharti while mounting pressure on Reliance Communications' GSM plans. By Rex Mathew.

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.

Other major bidders were R-ADAG flagship and the largest Indian CDMA mobile operator Reliance Communications, London-based NRI business group Hinduja in partnership with Qatar Telecom and Essar group, which controls 33 per cent of Hutch-Essar. Though there was some speculation about another possible bidder – either US company Verizon Wireless or a Russian telecom company – it is unclear whether there was a fifth bid.

Vodafone is the largest telecom operator globally in terms of revenues with 2006 revenues of around $58 billion. The group earned EBITDA of over $23 billion during last year and has a market capitalisation of close to $160 billion. The company is present in 27 countries – either directly as an operator or as an investor in other telecom companies – and has a total customer base of close to 200 million, excluding Hutch-Essar. The company employs nearly 60,000 people worldwide.