Battle of wits

BANGALORE: On 15th August 1996, the union government of India decided to gift the population a marvel known as mobile telephony. Little could anyone guess that a decade later, the Indian mobile market would be so big and enticing that global majors would be fighting to gain a foothold.

The current Hutch Essar imbroglio underlines the attractiveness of the market. The market valuation of Hutch Essar at $16-17 billion is a statement enough to prove India’s attractiveness.

Hutch has been in India for 10 years now, when it entered the market by buying out Max in Mumbai. In the following years, it acquired the operations of Essar (owned by Ruias) in Delhi and three other states. This resulted in formation of the Hutchison Essar Limited, a joint venture in which Hutchison Whampoa (the parent company) owned 67 per cent and the Ruias accounted for another 33 per cent.

In the past few years, quite many differences cropped up between Hutchison and the Ruias, right from the way the JV was run, to Hutchison selling of a part of its stake to Orascom. Seemingly fed up, Hutchison decided to cash out, and they could not have found a more opportune moment.

The Indian mobile market is on a roll, with over 120 million subscribers and a few millions being added every month. It is “the” destination to be in. Given this scenario, there seemed to be many suitors wanting to buy out Hutchison’s stake or even the complete JV itself.

Reliance (ADA group) for sometime now has been talking a lot about GSM and how it wants to get into that space in earnest. It has emerged as one of the strongest contenders, backed by a few US private equity funds. Reliance can garner the requisite money for the buyout.

In the past few days, another name has been doing rounds as a possible contender for the buyout, UK-based Vodafone. The telecom giant, and more importantly its CEO Arun Sarin, seem keen to increase their operations in India and what better way than to buy out a company that has close to 14 per cent market share.

The triangle is completed by the Ruias themselves. Since, they have the first right of refusal, it could very well be the case that they would want to own it all. Though, many may doubt Ruias ability to buyout the stake completely, there have been recent reports that they have made a move to do the very same.

All in all, the battle for Hutch will be an interesting event, as many feel that the price being quoted is quite on the higher side. There have been other names that have been cropping up, like Malaysian player Maxis or Egypt’s Orascom, but overall they do not seem to have the wherewithal to buy out the venture themselves.

Does it make good business sense to buy an overvalued company is a thought that might be troubling all.

Meanwhile, Li Ka Shing, the richest Chinese and owner of Hutchison Whampoa must surely be gloating at the wise decision he had made some ten years back, now is the time to reap the dividends.

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