Vodafone's hiked bid values HEL over $20 bn

The bidding war for the country’s fourth largest mobile phone company Hutch-Essar (HEL) has gained momentum with leading contender Vodafone slated to make a fresh bid this week. According to sources, the UK telecom major has assigned a value of over $20 billion for the entire company. At this valuation, Hong-Kong based Hutchison Whampoa’s 67% stake in HEL is pegged at about $14 billion. In addition, Vodafone is also expected to incur an extra cost of about $2 billion for control of the company.

Vodafone, the world’s largest cellphone firm, is believed to have earlier valued the Hutch at $17-18 billion. Sources confirmed that Vodafone was likely to table its fresh bid for the 67% stake this week through its advisor. When contacted, the Vodafone spokesperson Bobby Leach told ET: “I’m afraid this is all speculation and we have no comment to make.”

Hutchison Whampoa, owned by Hong-Kong tycoon Li Ka-shing, holds 67% stake in HEL, with the Ruias of the Essar group holding the remaining 33%. As reported by ET, the Ruias, last week had offered to buy Hutchison Group’s 67% stake for $11 billion, at an estimated enterprise value of about $17-18 billion for the company. The offer was made through the group’s advisors Morgan Stanley and Bear Stearns.

However, Vodafone’s proposed bid raises the enterprise valuation of the company to over $20 billion. Vodafone’s new bid will also be in line with the Hong Kong conglomerate’s stance that it will sell its 67% stake only for $14 billion plus, and would not ‘consider any offer below this figure’.

Even as some shareholders have objected to the high valuations being assigned to HEL, Vodafone’s top management appears to be going ahead full steam with the bid. Also, its principal share holder Standard Life, which in the past has openly criticised the company’s acquisition moves has endorsed the move to bid for HEL. (Standard is among the company’s three major stakeholders.)

Last week, Reliance Communications (RCOM) chairman Anil Ambani moved the battle to the next level by officially confirming his RCOM’s interest in acquiring HEL.

At the moment Vodafone, RCOM and the Ruias are the front runners to buy out the Hutchison Group’s stake in HEL.
Meanwhile, fresh speculation is doing the rounds that the Ruias were having different views on their strategy, with chairman Shashi Ruia, wanting to sell-out and exit the telecom business, while Ravi Ruia wanted to continue by acquiring the remaining 67%.

However, when contacted, Essar sources rubbished these rumours as ‘utterly baseless’.
If Vodafone acquires Hutch, India will account for its third largest customer base. The UK-based company operates in 27 markets, globally. Germany is the largest market for Vodafone with 29 million subscribers while the US (where it has 44.4% stake in Verizon) is the second largest. If the deal goes through, India would become the country with most potential for expansion for Vodafone, with only 11% teledensity. Most countries where Vodafone operates currently are reaching the saturation point. Switzerland has a teledensity 96% followed by Germany (80%), US (76%), France (78%), Turkey (67%) and Romania (70%).

Vodafone’s strategy clearly is to concentrate its resources on emerging markets. In a statement issued earlier this month, the company states that its focus will now be markets of EMAPA — Eastern Europe, Middle East, Africa, Asia Pacific and affiliates.

Vodafone’s move to join the war for Hutch Essar, and in the process sellout its 10% stake in Bharti Airtel, is in line with its global exit strategy. Vodaone’s recent history reveals that the telecom behemoth has exit markets, where it did not command a leadership position. And, it has been shedding stake in operators, where all doors to pick up controlling stake remained closed.