Merger Synopsis

In the year 2007, the world's largest telecom company in terms of revenue, Vodafone Plc (Vodafone) made a major foray into the Indian telecom market by acquiring a 52 percent stake in the Indian telecom company, Hutchison Essar Ltd (Hutchison Essar), through a deal with the Hong Kong-based Hutchison Telecommunication International Ltd. (HTIL). It was the biggest deal in the Indian telecom market. Vodafone's main motive in going in for the deal was its strategy of expanding into emerging and high growth markets like India. In 2007, India had emerged as the fastest growing telecom market in the world outpacing China. But it still had low penetration rates, making it the most lucrative market for global telecom companies. |

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Though Hutchison Essar was one of the established players in this market, HTIL had exited India as the urban markets in the country had become saturated. Future expansion would have had to be only in the rural areas, which would lead to falling average revenue per user (ARPU) and consequently lower returns on its investments. HTIL also wanted to use the money earned through this deal to fund its businesses in Europe.

Vodafone had to face face many obstructions in clinching the deal - initial opposition for the Indian partner of HTIL, Essar Ltd., aggressive bidding by competitors, as well as regulators who took their time to approve the deal. But in the end, Vodafone bagged the deal outbidding other competitors. Though some critics felt that Vodafone had overpaid for Hutchison Essar, Vodafone contended that the price was worth paying as the deal would help it get a massive footprint in one of the most competitive telecommunication markets in the world.

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Issues:

The case will help the students to:

» Understand the importance of international mergers and acquisitions as a growth strategy in the era of globalization.

» Understand the opportunities that emerging markets such as India...