Submitted in partial fulfillment of the requirements for the award of the degree of BACHELOR OF BUSINESS ADMINISTRATION TO
MA M A H A R I S H I D A Y A N A N D U N I V E R S I T Y , R O H T A K Under the supervision of: Mr M r . Y a t i n G o e l (Assistant manager BBA department)
Submitted by:P an ka j Si ngl a Roll no. 1714 BB B B A 5 t h s e m e s t e r
DECLARATION
I Pankaj Singla a student of B.B.A (Session 2010-20013) at Vaish Institute Of Management and Technology (VIMT), Rohtak. My institute Roll No. is 1714
Pre- Merger and Post- Merger effect on I have to declare that the project entitled PreVodafone Hutch deal” deal” is an original work and the same has not been submitted to any other institution for the award of any other Degree. “
I certify that it is my original work and have not been copied from any other student or any other source which can violate the Maharshi Dayanand University. If in case my work is found copied, I shall be myself responsible for the consequences arising out of It.
PANKAJ SINGLA
ACKNOWLEDGEMENT
re- Merger and Post- Merger effect on Vodafone Hutch deal” deal” This project “P “Preis a kind effort, which is undertaken during fourth semester as a dissertation report. Before actually starting my project, first of all I want to thank almighty God by whose grace I would be able to achieve my objectives of study. Intention, dedication, concentration and hard work are very much essential to complete any task. But still it needs a lot of support, guidance, assistance, co-operation of people to make it successful. I bear to imprint of my people who have given me, their precious ideas and times to enable me to complete the research and the project report. I want to thanks them for their continuous support in my research and writing efforts. I wish to record my thanks and indebtedness to Yatin Goel- Faculty, VIMT Rohtak, whose inspiration dedication and helping nature provided me the kind of guidance necessary to complete this project. I am extremely grateful to Vaish Institute Of Management and Technology for granting me permission to be part of this college. I would also like to acknowledge my parents and my batch mates for their guidance and blessings.
PREFACE
BBA is a stepping-stone to the management carrier and to develop good manager it is necessary that the theoretical knowledge must be supplemented with exposure to real environment. Theoretical knowledge just provides the base and it is not sufficient to produce a good manager that is why Practical Training is necessary.
Therefore Dissertation Report is an essential requirement for the student of BBA. This report not only helps the students to utilize his skills properly and learn field realities. In accordance with the requirement of BBA course I have done my project in the area of
re- Merger and Post- Merger effect on Vodafone Finance project undertaken, “P “PreHutch deal” deal”
Table of content CHAPTER No. PARTICULARS 1
Introduction to project
2
Review of literature
3
The deal Introduction Reasons for the acquisition Benefits to Vodafone
4
Research Methodology
5
Objective of the study
Research design
Data collection
Data analysis analysis & interpretation interpretation
6
Findings
7
Need of the study study
8
Bibliography Bibliography Annexure Financial statement statement of Vodafone Vodafone st
For the year ended ended 31 March 2005-2010 Tax verdict
Chapter 1
INTRODUCTION In an increasingly open global economy, where old prejudices against foreign ‗predators‘ and old fears of economic colonization have been replaced by a hunger
for capital, Mergers and Acquisitions (M&A) are welcome everywhere.
In human aspects of M&A‘s we used a not-too-original distinction between mergers, acquisitions and joint ventures. M&As represented a ‗marriage‘, while joint ventures meant ‗cohabiting‘. Although mergers and acquisitions are generally treated as if
they are one and the same thing, they are legally different transactions. In an acquisition, one company buys sufficient numbers of shares as to gain control of the other — the acquired company. Acquisitions may be welcomed by the acquired company or they may be vigorously contested.
There are several alternative methods of consolidation with each method having its own strengths and weaknesses, depending on the given situation. However, the most commonly adopted method of consolidation by firms has been through M&As. Though both mergers and acquisitions lead to two formerly independent firms becoming a commonly controlled entity, there are subtle differences between the two. While acquisition refers to acquiring control of one corporation by another, merger is a particular type of acquisition that results in a combination of both the assets and liabilities of acquired and acquiring firms. In a merger, only one organization survives and the other goes out of existence. There are also ways to acquire a firm other than a merger such as stock acquisition or asset acquisition.
The Vodafone-Hutch deal is one of the largest M&A deal executed by overseas firm in Indian subcontinent. Today Vodafone business in India has been successfully integrated into the group and now has over 44 million customers, with over 50 per cent pro forma revenue growth. Revenues increased by 50 per cent during the year driven
by rapid expansion of the customer base with an average of 1.5 million net additions per month since acquisition
In today‘s volatile market, where major M&A deals are showing negative
growth or companies are looking for Government Bailout money, Vodafone acquisition of hutch is a major contributor to its revenue .While India‘s revenues gr ew by 29.6 percent other
APAC countries posted far lower growths at 10 percent in Egypt, 7 percent in Australia and 3 percent in New Zealand at constant exchange rates.
COMPANY PROFILE
Vodafone Essar VODAFONE ESSAR LIMITED
Type: Private
Founded: 1994as of Hutchison Essar
Headquarters: Mumbai, India
Key People: Asim Ghosh – M.D
Industry: Telecom
Products: Mobile Telecommunication operator
Website: Vodafone India
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Reach out to the world with a Vodafone Prepaid SIM card without worrying about mobile Prepaid recharge minutes and Prepaid phone rates. Select a Prepaid mobile phone tariff plan that works for you. Choose your Prepaid mobile phone tariff plan
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anymore. With the help of this Prepaid World Calling Card, you can keep a tab on your longdistance call expenses. Plus no security deposit. It‘s easy to buy World Calling Cards in India. World Calling Cards are
available at your nearest Vodafone Store, Vodafone Mini Store or at any shop that displays the ―World Calling Card‖ sign.
World Calling Card rates
Make the most of your Vodafone mobile phone while making long distance calls with the special World Calling Card rates meant to help you save money. Check out World Calling Card rates Using our international Prepaid calling cards
Scratch the silver foil on the cell phone calling card for India to get your secret 12-digit PIN. Dial the toll free number on the back or 50118 / 50218 and enter the PIN from your Prepaid World Calling Card. To make an STD call with your Prepaid mobile phone card, dial ´0´ followed by the STD code and then the phone number. To make an ISD call with your Prepaid mobile card, dial ´00´ followed by the ISD code and the phone number. For more information on using your Prepaid phone card, click here Checking your balance
To know how much you‘ve spent on your Vodafone cell phone wit h lower
overseas Calling Card rates, SMS WCCBAL <12 digit PIN> to 111 (toll free) Making payments for your Prepaid phone calling cards
You will never have to face any hassles of bill payments for this Prepaid phone calling card because there simply are no bills. With this Prepaid phone Calling Card, your charges get deducted as you speak. For more information on ISD calling cards and STD calling cards, dial 50119 (toll free) Gulf Calling Card
Now you can call the Gulf at the lowest possible calling card rates with the best Prepaid phone card for the Gulf . Know more
Vodafone PCO
Want to start making some money? Install a Vodafone PCO in your house or shop, and start earning today with fixed cellular terminals. It´s easy to install, maintain and use – and provides uninterrupted service. It doesn´t even take up that much space! Read more
Vodafone Handyphone Introducing the landline that‘s loaded with all the features of a cell phone including low call rates. And Vodafone Handyphone aren‘t that expensive either. You can
make one yours for as little as Rs 1999. Key features:
Calls to any 3 Vodafone numbers @ 20p / min
Calls to all local mobile phones @ 40p / min
Free local & STD calls every month
Chapter 2
Review of literature Vodafone Essar, previously Hutchison Essar is a cellula operator in India that covers 16 telecom circles in India. Despite the official name being Vodafone Essar, its products are simply branded Vodafone. It offers both prepaid and postpaid GSM cellular phone coverage throughout India and is especially strong in the major metros.
Vodafone Essar provides 2G services based on 900Mhz and 1800Mhz digital GSM technology, offering voice and data services in 16 of the country's 23 licence areas.
Ownership:-
Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Indian nationals, 15%. On 11 February 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on 8 May 2007. Previous brands:-
In December 2006, Hutch Essar re-launched the "Hutch" brand nationwide, consolidating its services under a single identity. The Company entered into agreement with NTT DoCoMo to launch i-mode mobile Internet service in India during 2007. The company used to be named Hutchison Essar, reflecting the name of its previous owner, Hutchison. However, the brand was marketed as Hutch. After getting the necessary government approvals with regards to the acquisition of a majority by the Vodafone Group, the company was rebranded as Vodafone Essar.
Chapter 3
The Deal Vodafone is a mobile network operator with its headquarters in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £75 billion (August 2008). Vodafone currently has operations in 25 countries and partner networks in a further 42 countries. The name Vodafone comes from Voice data fone, chosen by the company to ―reflect the provision of voice and data services over mobile phone s.
Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Indian nationals, 15%. On February 11, 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on May 8, 2007. As of Nov 2008 Vodafone Essar has 58764164 or 23.57% of total 249349436 GSM mobile connections in India. Vodafone India‘s share in the mobile phone operator
market rose to 18 percent.
Hutch-Essar Hutch Essar was a leading Indian telecommunications mobile operator with 23.3 million customers at 31 December 2006, representing a 16.4% national market share. Hutch Essar operates in 16 circles and has licences in an additional six circles. In the year to 31 December 2005, Hutch Essar reported revenue of US$1,282 million, EBITDA of US$415 million, and operating profit of US$313 million. In the six months to 30 June 2006, Hutch Essar reported revenue of US$908 million, EBITDA of US$297 million, and operating profit of US$226 million. Up until January 2006, Hutch Essar had licences in 13 circles, of which nine have 900 MHz spectrum. In January 2006, Hutch Essar acquired BPL, thereby adding three circles, each operating with 900 MHz spectrum. In October 2006, Hutch Essar acquired Spacetel, adding six further licences, with operations planned to be launched during 2007
Did Vodafone overpay for a stake in Hutchison Essar?
Vodafone (VOD), a British mobile telecom operator, has set a foot India with a purchase of 67% stake in Hutchison Essar. The bid valued the company, including $2 billion debt, at $18.8 billion. Hutch, at the end of December 2006, had little less than 24 million subscribers in India.
WHY VODAFONE TOOK OVER HUTCH? THE INDIAN ADVANTAGE: 1. Since privatization of the telecom sector in 1994,the competition has increased manifold and India has emerged to be second largest telecom market. 2. Vodafone needed to make an impact in the emerging markets because its traditional European markets had been saturated by 2005. 3. India was chosen over China because india‘s monthly mobile subscription addotion had overtaken china‘s at around 6 million.
4. Penetration rate of mobiles in india was low and was expected to go up significantly in the coming years. 5. It was expected that india would soon be entering 3 G services. Vodafone experience in the European market was an added advantage and it was felt that whenever these services would be stared, Vodafone would have a competitive advantage over its competitive.
THE HUTCH ADVANTAGE:1. Hutch was one of the key players in the Indian telecom markets. 2. Hutch was one of the most profitable telecom providers in the country, with the yearly revenue growth close to 51%. 3. They had a nationwide presence in india with the expansion drive that they had undertaken and manage to get 22 out of 23 licenses areas or circles. 4.Hutch , being such a big player had a very high brand recall value in the minds of its existing and potential new customers mainly because of its excellent advertisement campaigns.
5.They used latest technology which meant that the customers were assured of good quality,and so remained loyal to the brand.
Vodafone agrees to acquire control of Hutch Essar in India February 12, 2007 -- Vodafone announces that it has agreed to acquire a controlling interest in Hutchison Essar Limited (―Hutch Essar ‖), a leading operator in the fast growing
Indian mobile market, via its subsidiary Vodafone International Holdings B.V. Vodafone also announces that it has signed a memorandum of understanding (―MOU‖) with Bharti Airtel Limited (―Bharti‖) on infrastructur e sharing and that it has granted an option to a Bharti
group company to buy its 5.6% direct interest in Bharti. The key highlights are: Acquisition of a controlling interest in Hutch Essar o
Vodafone announces it has agreed to acquire companies that control a 67% interest in Hutch Essar from Hutchison Telecom International Limited (―HTIL‖) for a cash
consideration of US$11.1 billion (£5.7 billion) o
Vodafone will assume net debt of approximately US$2.0 billion (£1.0 billion)
o
The transaction implies an enterprise value of US$18.8 billion (£9.6 billion) for Hutch Essar
o
The acquisition meets Vodafone‘s stated financial investment criteria Infrastructure
sharing MOU with Bharti o
Whilst Hutch Essar and Bharti will continue to compete independently, Vodafone and Bharti have entered into a MOU relating to a comprehensive range of infrastructure sharing options in India between Hutch Essar and Bharti
o
Infrastructure sharing is expected to reduce the total cost of delivering telecommunication services, especially in rural areas, enabling both parties to expand network coverage more quickly and to offer more affordable services to a broader base of the Indian population
Local partners o
The Essar Group (―Essar‖) currently holds a 33% interest in Hutch Essar and Vodafone
will make an offer to buy this stake at the equivalent price per share it has agreed with HTIL
o
Vodafone‘s arrangements with the other existing minority partners will result in a shareholder structure post acquisition that meets the requirements of India‘s foreign
ownership rules 10% economic interest in Bharti o
Vodafone has granted a Bharti group company an option, subject to completion of the Hutch Essar acquisition, to buy its 5.6% listed direct interest in Bharti for US$1.6 billion (£0.8 billion) which compares with the acquisition price of US$0.8 billion (£0.5 billion)
o
If the option is not exercised, Vodafone would be able to sell this 5.6% interest
o
Vodafone will retain its 4.4% indirect interest in Bharti, underpinning its ongoing relationship
Commenting on the transaction, Arun Sarin, Chief Executive of Vodafone, said: ―We are delighted to be deepening our involvement in the Indian mobile market with the full range of
Vodafone’s products, services and brand. This announcement is clear evidence of how we are executing our strategy of developing our presence in emerging markets. We have concluded this transaction within our stated financial investment criteria and we are confident that this will prove to be an excellent investment for our shareholders. Hutch Essar is an impressive, well run company that will fit well into the Vodafone Group. ‖
Sir John Bond, Chairman of Vodafone , said: ― India is destined to become one of the largest and most important mobile markets in the world and this acquisition will enable our shareholders to benefit from our increased investment in this market. We also look forward to playing our part in delivering the significant economic and social benefits which mobile telephony can bring to the people of India .‖
Principal benefits The principal benefits to Vodafone of the transaction are: o
Accelerates Vodafone‘s move to a controlling position in a leading operator in the attractive and fast growing Indian mobile market
o
India is the world‘s 2nd most populated country with over 1.1 billion inhabitants
o
India is the fastest growing major mobile market in the world, with around 6.5 million monthly net adds in the last quarter
o
India benefits from strong economic fundamentals with expected real GDP growth in high single digits
o
Hutch Essar delivers a strong existing platform in India
o
nationwide presence with recent expansion to 22 out of 23 licence areas (―circles‖)
o
23.3 million customers as at 31 December 2006, equivalent to a 16.4% nationwide market share
o
year-on-year revenue growth of 51% and an EBITDA margin of 33% in the six months to 30 June 2006
o
experienced and highly respected management team
o
Driving additional value in Hutch Essar
o
accelerated network investment driving penetration and market share growth
o
infrastructure sharing MOU with Bharti plans to reduce substantially network opex and capex.
o
potential for Hutch Essar to bring Vodafone‘s innovative products and services to the Indian market, including Vodafone‘s focus on total communication
solutions for customers o
Vodafone and Hutch Essar both expected to benefit from increased purchasing power and the sharing of best practices
o
Increases Vodafone‘s presence in higher growth emerging markets
o
proportion of Group statutory EBITDA from the EMAPA region expected to increase from below
o
20% in the financial year ending 31 March 2007 (FY2007) to over a third by FY2012.
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. 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: o
Expanding distribution and network coverage
o
Lowering the total cost of network ownership
o
Growing market share
o
Driving a customer focused approach
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. 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%.
Further transaction details
The transaction is expected to close in the second quarter of calendar year 2007 and is conditional on Indian regulatory approval.
HTIL‘s existing partners, who between them hold a 15% interest in Hutch
Essar, have agreed to 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. If Essar decides to accept Vodafone‘s 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.
The provisions of Section 195, they came into force in 1939 in the old act. One never intended to cover payments outside India and that was on assumption of the legislature - that was the enquiry committee report, which said that it is not intended to apply outside India. Not only that that, it was the assumption of the Department, they had issued circulars on that basis, that tax deduction provisions do not apply outside India, even if overseas income were taxable in India.
Vodafone has very vehemently argued that even if Section 195 were to be interpreted the way the Department wants; to interpret to mean that a person would include a non-resident, it has to be read contextually and the territorial limitation has to be read into that section. It cannot apply to any and every transaction that may happen outside India in relation to any goods or any services or any other assets that may happen outside India. Unless the Act specifically provides so and in the Act as it is standing today, I do not think there is any specific provision in the law.
The interpretation of Section 91, where they have said that the direct and the indirect aspect of the income is applicable only to the accruing; it does not apply when there is a transfer of a capital asset situated in India. So the main argument and the issue really is whether the capital asset which is really transferred situated in India, the Indian asset may have the bearing on the value of the foreign asset. But is it really a capital asset which was in India. That is really the issue, which will have to be sort of dealt with when one has to give a verdict on the taxability of the transaction.
It is always self-evident, that if we buy shares of a company, in effect the shares are valued based on the underlying asset that is contained in the company - so that is self evident. For example, let us say today the Suzuki company was sold to Toyota overseas. Is there an argument to say that the sale consideration that was paid-obviously what Suzuki will be paid by Toyota; it will include the value of the business in India, it will include the value of the business everywhere the Suzuki operates - so is there going to be an
argument now that consideration should be split and to the extent the consideration relates to Suzuki‘s Indian business that is tax able in India. So I think we have got a huge broader issue
that we are dealing with here and therefore I do not think these arguments about value being the underlying value are anything significant. These are self evident in any transaction where you buy shares of a company that has assets. So I think that there is a huge overall perspective here.
The two other aspects that I did want to touch upon because that might be one bizarre outcome -Let us say that the Bombay High Court holds that there may be an argument that the capital asset is actually situated in India but they hold that the provisions of Section 195, that is the obligation to withhold tax being a procedural obligation does not apply amongst to non-residents. I am not certain but I think that there could be another argument where the Department may say that the Vodafone paying entity becomes what is called representative assessee of Hutchison. It is a very technical issue; normally a representative assessee can only be a person in India. But if a foreign entity buys a capital asset from another foreign entity, which is situated in India, then it becomes a representative assessee, in which case it becomes primarily liable for the tax liability not for withholding tax.
So that is not the issue before the court. But if the court came up with some distinction of this kind that we do not believe Section 195 applies because of extraterritoriality then that does not necessarily mean that the avenues for the tax department are shut out. It depends a bit on what the court holds when it deals with the taxability at least in a prima facie level.
In so far as the arguments mentioned, I am not sure it was taken up-it came up at some stage. One of the things that is important to consider is that we have a decision of the Supreme Court in the case of Mauritius companies - the famous decision of Azadi Bachao-which basically said that if you have a Mauritian special purpose entity with
no substance but to hold shares, you cannot pierce its corporate veil and go upward because the tax residency certificate protects the substance of the Mauritian entity. So in other words, you cannot pierce the corporate veil upwards.
Now what we are doing is piercing the corporate veil backwards. We are saying the Mauritius company had it sold the shares, it would not have been taxable and you could not look beyond the Mauritius company to see who actually made the money because ultimately the money from the Mauritius company went to the beneficial owner who was a resident in a non-treaty jurisdiction. But the argument put on its head is you could not pierce the corporate veil upwards. But when the shareholder of the Mauritian entity sold the shares, you could pierce the corporate veil downwards, which I think is a bit bizarre because if you cannot pierce the corporate veil of the Mauritian entity; because that is what the Supreme Court said in Azadi Bachao, then I am not terribly sure on how you can pierce the corporate veil downwards.
The department has itself signaled that other M&A deals will be looked at by them and I believe they have issued notices to other companies on similar lines, I believe they are also pursuing cases of participatory notes.
But leaving that aside, everyone has talked about M&A deals. But if the logic of the Department were to prevail, then every transaction on the New York Stock Exchange in a US company which has shares in the Indian company would have some part of it‘s value derived from the Indian assets. Then the y would say that the New York buyer by their logic under Section 195 should be deducting tax on that proportion. I think it‘s
completely laughable but it necessarily follows from the stand the department has taken. So either their stand is right in which case it should work the way I am saying, or their stand is wrong and I do believe their stand is wrong.
Second and the surprising part is the macro perspective, other deals over the past -overseas deals or an overseas company, who are owning assets in India, is not new to us. We had the Sterling Tea Companies for example; we had Calcutta Tramways which was a company whose only asset was by its name suggested the tramways in Calcutta. If you had a sale of those shares on the stock market in London, who never sought to tax that. There were many companies with those features in the past we had other sales like CEAT, Dunlop, Shaw Wallace, which happened overseas it has never been sought, to be taxed by the department on the sales for public knowledge. So why did the department change its stand.
The issue really is that it will definitely open up a lot of issues for Indian investors investing abroad if a similar transaction was sought to be taxed by the tax authorities in other countries; we had a situation where in the context of some other provision, particular position was taken by the tax authorities and some other country decided to tax the software companies abroad and that issue had to be resolved ultimately through mutual bilateral talks and to bring an end to that. So I do agree that yes, if such a thing happens then we can have responding actions and there could be pressure from other countries also to do something similar. So one needs to be very careful when one deals with such issues.
Taxability apart, I don‘t want to get into that but I think this applying,
withholding tax or tax deduction obligations in offshore transactions is going to have a huge element of uncertainty when you do transactions, two foreign companies sitting in New York are selling businesses or companies to each other and they are now going to have to wonder how much tax they should withhold- should they apply to the Indian Tax Authorities. I think it creates a great degree of uncertainty and even if the Tax Department wants to go after taxability of these transactions, I think we need to divorce the procedural issue of tax deduction at source from the arguments on whether or not the transaction is taxable and be a little more realistic and rational to bring in certainty to transactions rather than bring in an element of uncertainty here.
Today we are doing transactions offshore, what do we tell people? You are buying shares of an offshore company but by the way you may have withholding tax obligations; should you apply to the Tax Department to deduct taxes? So it becomes very complicated.
Chapter 4
RESEARCH METHODOLGY The methodology used qualitative,
quantitative, and mixed-methods.
Qualitative methods include the case study, phenomenology, grounded theory, and ethnography, among others. Quantitative methods include, Ratio analysis, observational studies,among others.
Types of Research
The research study under consideration is exploratory type. Basically there are two broad kinds of researches
Exploratory Research :
This seeks to discover new relationships.
Conclusive Research :
It is designed to help executive choose the various Course of action.
As research design applicable to exploratory studies are different from objectives firmly in mind while designing the research. Which searching for hypothesis, exploratory designs are appropriate; when hypothesis have been established and are to be listed, conclusive designs are needed. It should be noted however, that the research process tends to become circular over a period of time. Exploratory research may define hypothesis, which are then tested by conclusive research; but a by product of the conclusive research may be a suggestion of a new opportunity or a new difficulty. Other characteristics of exploratory research are flexibility and ingenuity, which characterize the investigation. As we proceed with the investigating it must be on the alert to recognize new ideas, as it can then swing the research in the new direction until they have exhausted it or have found a better idea. Thus they may be constantly changing the focus of invest as new possibilities come to attention. It should be added here that formal design in the researcher is the key factor.
Study of secondary sources of information.
The reason for selecting this mode of research for this type is that it‘s a prob
ably quickest and most economical way for research to find possible hypothesis and to take advantage of the work of to others and utilize their own earlier efforts. Most large companies
that have maintained marketing research programs over a number of years have accumulated significant libraries of research organizations furnishing continuing data. Procedure
As it is a secondary research, all the data is selected after rigorous analysis of articles from newspapers, magazines and internet. All the research collected is done by professional analyst across the world and is compiled in this project to understand these financial and business impact of merger and acquisition more effectively.
Chapter 5
Data Analysis and Interpretation TABLE 1
CURRENT RATIO= CURRENT ASSETS/CURRENT LIABILITIES
Period
Year
Pre-Merger
2005-06
7,532.00
28,616.00
0.263209393
2006-07
12,792.00
18,946.00
0.675182096
2007-08
8,667.00
27,947.00
0.310122732
2008-09
12,952.00
21,973.00
0.589450689
2009-10
13,640.00
15,512.00
0.879319237
PostMerger
Current Assets(in £m)
Current Liabilities(in £m)
Current Ratio
Current Ratio 1 R
0.8
A 0.6 T 0.4 I O 0.2 0 2005-06
2006-07
2007-08
2008-09
2009-10
YEAR Current Ratio
INTERPRETATION: A current ratio of 2:1 is considered as ideal, it means that the concern has the ability to meet
its current obligations . This graph shows rising trend in the Current Ratio of the company . Hence , company‘s financial position is better.
TABLE 2
QUICK RATIO= LIQUID ASSETS/CURRENT LIABILITIES
Period PreMerger
PostMerger
Year
Quick Assets(in £m)
Current Liabilities(in £m)
Quick Ratio
2005-06
7,235.00
28,616.00
0.252830584
2006-07
12,504.00
18,946.00
0.659980999
2007-08
8,250.00
27,947.00
0.295201632
2008-09
12,540.00
21,973.00
0.570700405
2009-10
13,207.00
15,512.00
0.851405364
Quick Ratio Quick Ratio 1 R 0.8 A 0.6 T 0.4 I O 0.2 0 2005-06
2006-07
2007-08
2008-09
2009-10
YEAR
INTERPRETATION: Quick Ratio is a measure of a company‗s immediate short- term liquidity. This graph shows
rising trend in Quick Ratio, hence, company‘s short -term liquidity is good.
TABLE 3
GROSS PROFIT RATIO=GROSS PROFIT/ NET SALES *100
Period
Year
Sales(in £m)
Gross Profit(in £m)
Pre-Merger
2005-06
29,350.00
12,280.00
41.83986371
2006-07
31,104.00
12,379.00
39.79873971
2007-08
35,478.00
13,588.00
38.29979142
2008-09
41,017.00
15,175.00
36.99685496
2009-10
44,472.00
15,033.00
33.80329196
Post-Merger
Gross Profit Ratio
Gross Profit Ratio 50 R
40
A 30 T 20 I O 10 0 2005-06
2006-07
2007-08
2008-09
2009-10
YEAR Gross Profit Ratio
INTERPRETATION:
This ratio is calculated to find the profitability of business. In this graph, there is declining in Gross Profit Ratio as sales is increasing but not in proportion with Gross Profit. This situation is not healthy for the business.
TABLE 4
NET PROFIT RATIO=NET PROFIT/NET SALES*100
Period
Year
Sales(in £m)
Net-Profit(in £m)
Pre-Merger
2005-06
29,350.00
21,916.00
74.67120954
2006-07
31,104.00
2,876.00
9.246399177
2007-08
35,478.00
6,756.00
19.04278708
2008-09
41,017.00
3,080.00
7.5090816
2009-10
44,472.00
8,618.00
19.37848534
Post-Merger
Net Profit Ratio
Net Profit Ratio 80 70 R 60 A 50 T 40 I 30 O 20 10 0 2005-06
2006-07
2007-08
2008-09
2009-10
YEAR Net Profit Ratio
INTERPRETATION: The Net Profit margin is indicative of management’s ability to operate the business with sufficient success. Higher the ratio the more favorable for the business.
TABLE 5
COST OF GOODS SOLD RATIO=COST OF GOODS SOLD/NET SALES*100
Period
Year
Sales(in £m)
Cost of Goods Sold(in £m)
Pre-Merger
2005-06
29,350.00
17,070.00
58.16013629
2006-07
31,104.00
18,725.00
60.20126029
2007-08
35,478.00
21,890.00
61.70020858
2008-09
41,017.00
25,842.00
63.00314504
2009-10
44,472.00
29,439.00
66.19670804
PostMerger
Cost of Goods Sold Ratio
Cost of Goods Sold Ratio 68 66 64 O I 62 T A R60
Cost of Goods Sold Ratio
58 56 54 2005-06 2006-07 2007-08 2008-09 2009-10 YEAR
INTERPRETATION: This ratio indicates the proportion that the cost of goods sold bears to sales. Higher the ratio, the the less favorable it is because it would have a smaller margin of Gross Profit for covering other operating expenses
TABLE 6
OPERATING PROFIT RATIO=OPERATING PROFIT/NET SALES*100
Period
Year
Sales(in £m)
Pre-Merger
2005-06
29,350.00
(14,084.00)
-47.98637138
2006-07
31,104.00
(1,564.00)
-5.028292181
2007-08
35,478.00
10,047.00
28.31895823
2008-09
41,017.00
5,857.00
14.27944511
2009-10
44,472.00
9,480.00
21.31678359
Post-Merger
Operating Profit(in £m)
Operating Profit Ratio
Operating Profit Ratio Operating Profit Ratio
28.31895823 R A T
2005-06
-5.028292181 2006-07 2007-08
21.31678359 14.27944511
2008-09
2009-10
I O -47.98637138 YEAR
INTERPRETATION:
This ratio establishes the relation between Operating Profit and Sales. Higher the ratio ,better it is.
TABLE 7
DEBT EQUITY RATIO=DEBT/EQUITY
Period
Year
Debt(in £m)
Equity(in £m)
Pre-Merger
2005-06
23,371.00
85,199.00
0.274310731
2006-07
23,378.00
67,067.00
0.348576796
2007-08
28,826.00
74,899.00
0.384864951
2008-09
39,975.00
83,392.00
0.479362529
2009-10
37,559.00
91,239.00
0.411655104
Post-Merger
Debt- Equity Ratio
Debt- Equity Ratio 0.6 0.5 R A
0.4
T 0.3 I O
Debt- Equity Ratio
0.2 0.1 0 2005-06 2006-07 2007-08 2008-09 2009-10 YEAR
INTERPRETATION: In this graph, a low ratio shows a greater claim of owners than creditors. It may also be taken
as quite unsatisfactory by the shareholders.
TABLE 8
PROPRIETORY RATIO=NET WORTH/TOTAL ASSETS
Proprietory Ratio
Period
Year
Shareholder's Funds(in £m)
Total Assets(in £m)
Pre-Merger
2005-06
85,199.00
126,738.00
0.672245104
2006-07
67,067.00
109,617.00
0.611830282
2007-08
74,899.00
127,270.00
0.588504754
2008-09
83,392.00
152,699.00
0.546120145
2009-10
91,239.00
156,985.00
0.581195656
Post-Merger
Proprietory Ratio R A T I O
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005-06
2006-07
2007-08
2008-09
2009-10
YEAR Proprietory Ratio
INTERPRETATION: Higher ratio indicates a sound position of business, because it shows business is dependent more on owner’s funds
TABLE 9
FIXED ASSETS TO NET WORTH RATIO= FIXED ASSETS/SHAREHOLDER’s FUNDS
Period
Year
Fixed Assets(in £m)
Shareholder's Funds(in £m)
Pre-Merger
2005-06
108,614.00
85,199.00
127.4827169
2006-07
96,825.00
67,067.00
144.3705548
2007-08
118,546.00
74,899.00
158.2744763
2008-09
139,670.00
83,392.00
167.4860898
2009-10
142,766.00
91,239.00
156.4747531
Post-Merger
Fixed Assets to Net Worth Ratio
Fixed Assets to Net Worth Ratio 180 160 R A T I O
140 120 100 80
Fixed Assets to Net Worth Ratio
60 40 20 0 2005-06 2006-07 2007-08 2008-09 2009-10 YEAR
TABLE 10 CURRENT ASSETS TO PROPRIETOR’s RATIO=SHAREHOLDER’s FUNDS/CURRENT ASSETS
Current Assets to Proprietor's Funds
Period
Year
Shareholder's Funds(in £m)
Current Assets(in £m)
Pre-Merger
2005-06
85,199.00
7,532.00
8.840479348
2006-07
67,067.00
12,813.00
19.10477582
2007-08
74,899.00
8,667.00
11.57158307
2008-09
83,392.00
12,952.00
15.53146585
2009-10
91,239.00
13,640.00
14.94974737
Post-Merger
Current Assets to Proprietor's Funds 25 20 R A 15 T Current Assets to Proprietor's Funds
I 10 O
5 0 2005-06
2006-07
2007-08 YEAR
2008-09
2009-10
Chapter 6
Findings 1. The transaction enhances Vodafone‘s growth profile on a pro forma statutory basis, with Vodafone‘s revenue and EBITDA CAGR increasin g by around one and a half
percentage points over the three year period to 31 March 2010. 2. 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. 3. 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.
Chapter 7
NEED FOR THE STUDY Primary Objective:
Study the performance of Vodafone pre and post acquisition.
Secondary Objectives:
Critically examine the rationale behind the acquisition of Hutch by Vodafone.
Understand the advantages and disadvantages of cross-border acquisitions.
Chapter 8
Bibliography www.moneycontrol.com www.google.com www.scribd.com www.vodafone.com www.stockopedia.com Kothari.C.R, Business Research Methodology,Himalya publishing company, 8 th Edition The Times of India
Annexure
Balance sheet 1:-
Balance sheet 2:-
Balance sheet 3:-
