Comments on: Hutch-Essar: The Coming-Of-Age Of Private Equity In India http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/ Issues & insights Fri, 25 Jul 2008 14:23:35 +0000 http://wordpress.org/?v=2.3.1 By: Visakh http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-104499 Visakh Thu, 15 Feb 2007 12:35:35 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-104499 finally vodafone got it..but while thinking on it..will vodafone be able to convert hutch into their own brand..idea did that with escotel after about one year..but hutch is not a small player like escotel..and the brand created by the ad..the dog..i don't think vodafone will be able to revamp the hutch completely..and today i read in paper that arun sarin also thinks the same..it will take minimum five years to completely brand hutch as a vodafone.. finally vodafone got it..but while thinking on it..will vodafone be able to convert hutch into their own brand..idea did that with escotel after about one year..but hutch is not a small player like escotel..and the brand created by the ad..the dog..i don’t think vodafone will be able to revamp the hutch completely..and today i read in paper that arun sarin also thinks the same..it will take minimum five years to completely brand hutch as a vodafone..

]]> By: Ramki http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-102674 Ramki Sun, 11 Feb 2007 18:40:53 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-102674 Finally the news is out and Vodafone bags the Prize (Hutch) for 19 Billion US$. This is indeed a positive development for all the players - the government, the consumers and the players themselves. The entry of a Technologically and Financially Powerful player in Vodafone will push Bharti and RelComm to work for greater effort to win consumers and they will work harder to earn every ARPU $... Which is best for everyone... India is comfortably a large market - remember that DESPITE so much growth in Mobile Telephony only 150 million Indians have mobile phones.. which means that some 950 Million Indians are still not having mobiles. The market is big enough to accomodate atleast 6 players. We will have Reliance, Bharti, Tatas, Birlas(Idea), Vodafone and BSNL and also some smaller players and there is enough room for all of them to grow . Finally the news is out and Vodafone bags the Prize (Hutch) for 19 Billion US$.

This is indeed a positive development for all the players - the government, the consumers and the players themselves.

The entry of a Technologically and Financially Powerful player in Vodafone will push Bharti and RelComm to work for greater effort to win consumers and they will work harder to earn every ARPU $… Which is best for everyone…

India is comfortably a large market - remember that DESPITE so much growth in Mobile Telephony only 150 million Indians have mobile phones.. which means that some 950 Million Indians are still not having mobiles. The market is big enough to accomodate atleast 6 players. We will have Reliance, Bharti, Tatas, Birlas(Idea), Vodafone and BSNL and also some smaller players and there is enough room for all of them to grow .

]]> By: Balaji Viswanathan http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-90544 Balaji Viswanathan Mon, 22 Jan 2007 20:02:43 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-90544 While it is far from clear which of the major players (Essar, Vodafone, Reliance, Hindujas, Maxis, Orascom) will finally win, I guess Indian might benefit more if Vodafone takes over Hutch. If Essar takes over, it will strain its finances and might not be able to concentrate on its other businesses, mainly dealing with Infrastructure & production. For India, it would be more beneficial if Essar pockets the $6billion+ and goes full blooded on its infrastructure projects rather than being saddled with $12b+ loans. If Reliance takes over, it might kill competition, as it would leave just two players - Bharti & Reliance who might then easily attack the smaller players Idea, Spice, and this over-consolidation might not be good for consumers. Again with Reliance, it would be better if they use their financial muscle for infrastructure (from country's point of view, as they need to spend more on retail, refineries etc. Regarding Orascom, it will surely hit the security regulations (it has operations in Pakistan) and Maxis doesnt have power to go alone. And Hindujas dont have too much of telecom expertise to develop Hutch much more. This leaves Vodafone that has enough technology to ramp up Indian telecom industry. It will surely modernize Hutch better & will give a run for Bharti & Reliance and this healthy competition would make the Big 4 get better & better. The consumers will get better deal, and overall Indian economy will prosper. Though it is unclear whether Vodafone can go in for $20b+ valuation, I wish it enters the market for the sake of overall bettermend. I dont know whether Indian government has this in mind or could once again become a pawn to Reliance's interests. While it is far from clear which of the major players (Essar, Vodafone, Reliance, Hindujas, Maxis, Orascom) will finally win, I guess Indian might benefit more if Vodafone takes over Hutch.

If Essar takes over, it will strain its finances and might not be able to concentrate on its other businesses, mainly dealing with Infrastructure & production. For India, it would be more beneficial if Essar pockets the $6billion+ and goes full blooded on its infrastructure projects rather than being saddled with $12b+ loans.

If Reliance takes over, it might kill competition, as it would leave just two players - Bharti & Reliance who might then easily attack the smaller players Idea, Spice, and this over-consolidation might not be good for consumers. Again with Reliance, it would be better if they use their financial muscle for infrastructure (from country’s point of view, as they need to spend more on retail, refineries etc.

Regarding Orascom, it will surely hit the security regulations (it has operations in Pakistan) and Maxis doesnt have power to go alone. And Hindujas dont have too much of telecom expertise to develop Hutch much more.

This leaves Vodafone that has enough technology to ramp up Indian telecom industry. It will surely modernize Hutch better & will give a run for Bharti & Reliance and this healthy competition would make the Big 4 get better & better. The consumers will get better deal, and overall Indian economy will prosper.

Though it is unclear whether Vodafone can go in for $20b+ valuation, I wish it enters the market for the sake of overall bettermend. I dont know whether Indian government has this in mind or could once again become a pawn to Reliance’s interests.

]]> By: Motabhai http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88696 Motabhai Thu, 18 Jan 2007 14:12:00 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88696 This is a very significant transaction from the point of view of both strategic and financial/PE investors in India (even though it is occuring in a relatively mature area like telecom). You are right it is essentially a faceoff between Vodafone and Reliance. Interestingly, the Ruias may have been coopted by Sarin, which would make a Reliance bid (supported by the PE firms) less likely to suced. From a practical perspective, this deal could go many ways with both Essar and now Orascom indicating their intention to 'spoil' the deal through their right of first refusal. It will be very interesting to see where the chips fall. Even for those of us involved in the transaction on the ground (representing one party or another), it is very difficult to tell what is going to happen. An important point you raised was about the market for corporate control (of lack therof) in India. How can Hutch's value suddenly be double of what is was six months ago? The reason is the control premium. As a purely financial/minority investor, I will not pay a cent above market price, but if I can gain control, the company is worth more to me. How much more is it worth to Vodafone vs. Reliance, i.e. who can afford to pay a bigger premium? It depends upon how effecive the eventual combination is at improving revenue growth and achieving cost synergies. Clearly in both of these respects, Reliance would be ahead and be able to pay a higher premium. The other key ingredient in a successful bid would be cheap financing as this drives your return on investment (how much you pay for making the investment) and Reliance has also secured this. Adding to this (wink wink) that Vodafone is a foreign firm, the advantage is with Reliance unless Vodafone is successful in making a joint bid with Essar - exactly what Sarin is currently trying to do. This is a very significant transaction from the point of view of both strategic and financial/PE investors in India (even though it is occuring in a relatively mature area like telecom). You are right it is essentially a faceoff between Vodafone and Reliance. Interestingly, the Ruias may have been coopted by Sarin, which would make a Reliance bid (supported by the PE firms) less likely to suced. From a practical perspective, this deal could go many ways with both Essar and now Orascom indicating their intention to ’spoil’ the deal through their right of first refusal. It will be very interesting to see where the chips fall. Even for those of us involved in the transaction on the ground (representing one party or another), it is very difficult to tell what is going to happen.

An important point you raised was about the market for corporate control (of lack therof) in India. How can Hutch’s value suddenly be double of what is was six months ago? The reason is the control premium. As a purely financial/minority investor, I will not pay a cent above market price, but if I can gain control, the company is worth more to me. How much more is it worth to Vodafone vs. Reliance, i.e. who can afford to pay a bigger premium? It depends upon how effecive the eventual combination is at improving revenue growth and achieving cost synergies. Clearly in both of these respects, Reliance would be ahead and be able to pay a higher premium. The other key ingredient in a successful bid would be cheap financing as this drives your return on investment (how much you pay for making the investment) and Reliance has also secured this.

Adding to this (wink wink) that Vodafone is a foreign firm, the advantage is with Reliance unless Vodafone is successful in making a joint bid with Essar - exactly what Sarin is currently trying to do.

]]> By: Nanubhai http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88566 Nanubhai Thu, 18 Jan 2007 05:57:43 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88566 2. Most of the cases where the investor is given control are for small to mid-sized companies trying to gain market share, and establish themselves. 2. Most of the cases where the investor is given control are for small to mid-sized companies trying to gain market share, and establish themselves.

]]> By: Nanubhai http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88565 Nanubhai Thu, 18 Jan 2007 05:57:19 +0000 http://indianeconomy.org/2007/01/18/hutch-essar-the-coming-of-age-of-private-equity-in-india/#comment-88565 1. This of course does not mean that the impact of private equity is necessarily benign. There are some areas where it can go terribly wrong – such as when they create excessive debt in portfolio companies, or when they collude with management against individual shareholders interests. However, these deals mostly have a net positive impact on wealth creation – demonstrated most clearly by the outstanding returns of the top-tier firms (top quartile firms usually beat the market by as much as 15%, annualized). Aside from the managers of the fund, this additional wealth enriches not just the few and already wealthy; but also your average investor who has the majority of his assets in his retirement account, not to mention the other shareholders of PE-backed companies. 1. This of course does not mean that the impact of private equity is necessarily benign. There are some areas where it can go terribly wrong – such as when they create excessive debt in portfolio companies, or when they collude with management against individual shareholders interests. However, these deals mostly have a net positive impact on wealth creation – demonstrated most clearly by the outstanding returns of the top-tier firms (top quartile firms usually beat the market by as much as 15%, annualized). Aside from the managers of the fund, this additional wealth enriches not just the few and already wealthy; but also your average investor who has the majority of his assets in his retirement account, not to mention the other shareholders of PE-backed companies.

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