Technology market these days is replete with news of acquisitions and buy outs, but those primarily concern phone hardware manufacturers. Vodafone, one of the major telecommunications service provider has announced that it would increase its stake in the Indian branch of operations to a 100%.
Currently the Britain based company owns 74% stake in the Indian branch, rest of the ownership remains undisclosed. Vodafone acquired Hutch in India in the late 2000s. 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% and since then, has expanded dominion over the market with the largest competitor being Airtel, a subsidiary of Bharti.
Vodafone recently applied to the government branch that deals with external investment and acquisitions in India, the Foreign Investment Permission board (FIPB). The estimated investment that is involved is close to $2 billion. Piramal healthcare bought 11% stake in Vodafone and other stakeholders, though not officially disclosed, are understood to include Analjit Singh, Chairman of Vodafone India.
The Indian government increased the maximum limit of FDI (foreign Direct Investment) from 74% to 100% to boost a limping economy. Since then, Vodafone had started equity research to evaluate the buy-out parameters. The company faces tax liability to the tune of 11,200 Crores on its acquisition of Hutchison. Verizon on the other hand agreed to pay USD 130bn to buy Vodafone’s stake in its operations last month.
Indian telecommunication market is comparatively non-friendly to service providers, or has been in the last couple of years. The government side includes TRAI, DOT and other vigilance organizations that look into the matters more closely since the 2G scam. Vodafone buyout, while pumping money into the Indian market could also mean stricter scrutiny on Vodafone’s operations.