Vodafone And Hutchison Essar: A Merger In The Telecommunications Sector

Executive Summary

Describe about Vodafone and Hutchison Essar?

Vodafone and Hutchison Essar, is among the top companies in the Telecommunication sector. The merger and acquisition of these two companies brought a positive wave in this sector which benefitted the customers mostly. Both the companies are famous for their massive innovations which easily attracts the customers towards their products and services. They have their commitments towards their customers and they fulfill them with much interest. In International merger and acquisitions the inter-cultural issue is one of the major problems but with trainings it can be solved and after that the merger and acquisitions of those companies will reach their goals and take the companies to the next level.

Vodafone, as a company was integrated in the year 1984 under the English Law as Racal Strategic Radio Limited. After changing their name various times at last it was named as Vodafone Group Plc. According to Vodafone, businesses required a partner for communications who will be giving them solutions and will adapt with any change required for the company. For voice calls and emailing people need smart calls and that was on the best move by Vodafone by launching handsets under their brand and for calling, video conferencing and sharing of data to any location and for that they introduced the subscriber identity module (SIM) under their brand so that their consumer can contact with people staying at any part of the world. Vodafone came with many more new innovative ideas which are very useful for their customers and they will easily grasp this type of opportunities. Vodafone also introduced both pre-paid and post paid SIM so that customer can use any connection according to their wish.

The commitment of Vodafone in the community is very massive. They extended their operations beyond their services and products which they offer to the community. Vodafone has their commitment towards their society also and they fund the society from their annual contributions and the name of their body for societal care is Vodafone Group Foundation. Their foundation works in 27 countries which supports the society by involving themselves directly in different activities both nationally and globally.

Vodafone is always committed in delivering useful and innovative ideas. In the year 1991, they first launched first international roaming call from mobile. In the year 2002, Vodafone Live was launched and they set a totally new concept of mobile communication through internet access. Recently Vodafone introduced the idea of money transfer through mobile and it has become one of the new craze among the customers that without going to the bank they can transfer their money whenever and wherever they want without any risks. In the mobile phone industry Vodafone has recently stirred the market by launching their most low cost mobile handset till now.

Hutchison Essar, one of the leading brands in the Indian market of the year 1994. Hutchison Essar was formed by the Essar group and Hutchison Whampao. It was one of the top mobile service provider companies. They have their services in all the five continents and Hutch was one of the companies who started providing their services of cellular phones in India. Hutch has expanded their business in all over the country with their tag line” wherever you go, our network follows”. Both postpaid and prepaid services are provided by Hutch with much value added services to their customers. The market share of Hutch was 22% and their base amount on their customers was around 2.44 crores. The yearly turnover of Essar group was US$ 2.2 billion the value of their enterprise was US$ 15 billion. Hutchison Essar has their business both in the service sector and also in the manufacturing sector like- Constructions and engineering, Telecom & BPO, Oil and Gas, Steel etc. In the year 1983, In Hong Kong Hutchison Whampoa introduced themselves in the market of mobile business. In the year 2007, Vodafone decided to acquire Hutchison Telecom International Ltd, which is a part of Hutchison Whampao. Vodafone took almost half of the share and changed the name of Hutchison Essar into Vodafone Essar.

Merger and Acquisition

Merger and Acquisition (M&A) of both international and domestic companies has three main determinants. A. The factors of the acquiring companies and their targets. B. Factors of transactions between the companies and C. the process after combining the two companies. Mainly the merger or the acquisition is done when a company is sinking then a big company comes and buys that company if they thinks that they will be benefitted after the merger or when a company wants to expand their business in another country and finds out that a well known company is doing well in a certain country but they are facing certain problems and the acquiring company will be highly benefitted after the merger and acquisition then they goes for the deal. Before dealing for the merger and acquisitions specially internationally the acquiring company sees certain aspects and those are- the personal benefit of the company, benefit they will be getting strategically, their marketing motives and also their economic benefits.  Many companies goes for the acquisition if they sees that they will be benefitted totally in a new direction like taking over of Land Rower by TATA, where TATA was totally benefitted towards the technology side and it was totally new for them and specially in the foreign land. In M&A, mainly the home government encourages the foreign companies for the merger and acquisition because the foreign companies will invest in their country which will highly benefit them in employment and also improve their economic status.

In 2007, world’s one of the largest telecommunication country from revenue point of view Vodafone played a major role and decided to expand their business in Indian by acquiring 52% of shares of Hutchison shares by dealing with the Hong Kong HEL. In the Indian telecommunication market it was one of the biggest and best deals. They wanted this deal to expand and make growth in the Indian market. After Vodafone acquired HEL, India became the number one country in the telecommunication business replacing China. To keep their position intact Vodafone has still kept their rates low and making their most of the profit in the global market. Hutchison Essar was one of the key players in the telecom market but they mainly used to operate in the urban areas of India and they were planning of expanding their business in the rural areas. HEL was among the top ranked company in average revenue per user (ARPU) and also they are giving less return in their investments. Through this deal HEL was also benefitted because they also wanted to open their business in European countries (Weber, and Yedidia Tarba, 2012).

While signing the deal Vodafone had to face multiple obstructions and in the initial stage they got objections from the partners of Hutch and Essar’s. Their competitors were also assertive with this deal but after lot of effort at last Vodafone cracked the deal by outpacing their competitors. According to critics in spite of making profit Vodafone has cracked the deal by making loss. Vodafone has paid more money to Hutch than required but according to Vodafone it was worth paying in this competitive market of telecommunication (Schuler, Khilji, and Ruël,2015).

Merger & Acquisition Of Vodafone And Hutchison Essar

In today’s world global merger and acquisition is growing immensely. These are mainly referring to those merger and acquisition which is taking place internationally. Global mergers are also known as cross border or international mergers and acquisitions (Singh, 2012).

Internationalization and inter-continental financial improvement have contributed together in the betterment of merger and acquisition to a certain extent. Global merger and acquisition are taking place in the market in various forms like – vertical mergers, congeneric mergers, horizontal mergers, conglomerate mergers, dilutive mergers, reverse mergers etc (Gupta, 2014).

Global mergers and acquisitions are mainly performed for the motive of acquiring certain strategic benefits in the market of certain countries. Multi-national companies also enjoy numerous benefits like market dominance and economies scale with the help of global merger and acquisitions (Shah, 2013).

International acquisitions and mergers play a vital role behind the growth of the organizations. The deals and the transactions taking place between the big companies help them to acquire the market and also see that they are reaching the economies of scale. They also motivates the foreign direct investment (FDI) (Cole, 2013).

The well known global mergers and acquisitions companies provides with training and programs on education so that they can increase the number of experts in the sector of merger and acquisitions and also increase the knowledge of the expertise who are already working in this sector (Islam, Sengupta, Ghosh, and Basu, 2012).

In international mergers and acquisitions the rules and polices keeps changing and it is important for the companies coming under the global merger and acquisitions to follow this rules and be updated with this policies. Lots of professionals in the investment banking sector give their important views to their clients who deals with the mergers and acquisitions (Shah, 2013).

The famous line of Hutch “wherever you go , the network follows” has been adopted by many and liked by the customers. The merger and acquisition of Vodafone and Hutch is also the punch line of Hutch. After battling a lot with the deal at last Vodafone was able to acquire Hutch by 100 million USD.  Many thought that despite being competitors why Vodafone acquired Hutch with lots of risks and what is the difference between merger and acquisitions?

By Merger, it can be easily understand that two companies come together and merge into a big company and mostly after merger a name is acquired. Mainly the stocks of the companies’ makes the companies agree for going into merger despite numbers risks involved in the deal. An acquisition is almost like merger but it is named as acquisition due to marketing and political reasons to avoid problems (Whalley, and Curwen, 2012). One company is acquiring the other company or two companies are merging together to make profits and growing as a big company in the market without creating a total different entity in the market. An acquisition is always on a friendly basis not like the merger because in merger the acquired company always has to follow the rules of the acquirer. If a company buys shares without the knowledge of the other company then it is a aggressive decision and this type of ventures mainly takes place in merger but if the company is buying the shares by keeping the other company informed then it is a acquisition and shows the friendliness among the companies (Nalwaya, and Vyas, 2014).

So, the merger between Vodafone and Hutch is on friendly basis so it is an acquisition. While taking a company the acquiring company has to keep certain things in mind. The merger and acquisitions is mainly done to increase their growth in the market and also maintain the reputation of their brand image (Park, and Ghauri, 2011). So before going into such dealing the acquiring company has to keep all this things in their mind that whether this merger and acquisition will give profit to them or not, the merger and acquisition is beneficial for the acquiring company or not. Merger and acquisition plays an important role in building the brand image of the company and it will also show that the acquiring company is powerful or not among their rivals (Cartwright, and Cooper, 2012).

Few elements influence in the global merger and acquisition are- governance of corporate, laws of the companies, work capacity of the workers, customers’ expectations, and political factors of the country, country’s culture and tradition (Ferris, Jayaraman, and Sabherwal, 2013).

The HR department of the organization also has to face few challenges. The role of HR department is to look after the whole organization.  The HR head has the opportunity to influence their employees and organize events so that the organization beat his competitors but before doing that the HR should secure his position first throughout and after the process of merger. HR is responsible for smooth working of the organization. No cultural issue should create any problem in the organization working structure. In the higher level of the organization also HR can play an important role (Weber, Rachman-Moore, and Tarba, 2012). After the merger new leadership need to be introduced and work should be done on that regularly despite any issues. Team and personal assessment need to be done which will help the workers to work together and give a positive result. In merger and acquisition the HR has the opportunities to plan and execute their ideas so that the company can go for cost saving and marketing alliance. The merger and acquisition of the company will work or not is decided by the working style of the employees (Sarala, Junni, Cooper, and Tarba, 2014). The HR has huge responsibilities to make the employees work because the working structure of the newly combined employees will decide whether the company will be rising upwards or going downwards.  The HR has the power to change the culture of the organization if there is any need. When a merger takes place mainly the HR department of the acquired company gets eliminated and the work load totally falls on the acquirer company. If the HR department of both the companies works together then there is no such work pressure on any particular department but then comes the question of taking decisions, power of autonomy and independence and policies of the organizations. If there is any issue with debt with the acquired company then the acquirer company has to finance that and then the company goes for cost cutting and HR department is the first one in the organization who has to go through this phase (Reddy, Nangia, and Agrawal, 2014).

Recommendations and Conclusions

According to the research mainly 70 % companies who go for merger and acquisitions fails to succeed because they do not takes the necessary measures which are need to be taken. Cultural difference is one of the main issues in merger and acquisition and if there is a global merger then the culture issue is the most important issues for the organization which they need to deal with foremost (Weber, (Ed.). 2013). For the national employee it is very difficult to adopt the third culture but if it accepted well by the employees then it is one of the successful mergers for the organization and also for the world. In International mergers and acquisitions training on cross cultural awareness should be given to the employees to develop the intercultural issues among the employees (Gomes, Angwin, Weber, and Yedidia Tarba, 2013). These types of training will help the employees to understand the cultural issues of their colleagues and will provide the employees with opportunities so that they can develop their un-segregated approach towards the culture of the company and for global merger and acquisition it is very much needed (Weber, and Tarba, 2013).

In the merger and acquisition of Vodafone and Hutchison Essar, the culture difference was one of the issues but the mangers working for them worked on it and brought a wide diversity in the organization culture which worked in a positive way for the organization.  The company took the inter- cultural training which was effective for the organization and it developed the working structure of the employees and they started working as a multicultural team and it increases their strength and it also benefitted the culture of the organization’s acquisition (Erel, Liao, and Weisbach, 2012).

Reference

Cartwright, S., and Cooper, C. L. (2012). Managing Mergers Acquisitions and Strategic Alliances. Routledge.

Cole, A. (2013). Research Proposal, Mergers and Acquisitions in the telecomunication industry India. GRIN Verlag.

Erel, I., Liao, R. C., and Weisbach, M. S. (2012). Determinants of crossâ€Âborder mergers and acquisitions. The Journal of Finance, 67(3), 1045-1082.

Ferris, S. P., Jayaraman, N., and Sabherwal, S. (2013). CEO overconfidence and international merger and acquisition activity. Journal of Financial and Quantitative Analysis, 48(01), 137-164.

Gomes, E., Angwin, D. N., Weber, Y., and Yedidia Tarba, S. (2013). Critical Success Factors through the Mergers and Acquisitions Process: Revealing Preâ€Âand Postâ€ÂMandA Connections for Improved Performance. Thunderbird international business review, 55(1), 13-35.

Gupta, N. (2014). Opportunities and challenges of MandA in India (Doctoral dissertation, Massachusetts Institute of Technology).

Islam, M. S., Sengupta, P. P., Ghosh, S., and Basu, S. C. (2012). The Behavioral Aspect of Mergers and Acquisitions: A Case Study from India.Global Journal of Business Research, 6(3), 103-113.

Nalwaya, N., and Vyas, R. (2014). Merger and Acquisition in the Telecom Industry: An Analysis of Financial Performance of Vodafone Plc and Hutchison Essar. Journal of Marketing and Communication, 9(3).

Park, B. I., and Ghauri, P. N. (2011). Key factors affecting acquisition of technological capabilities from foreign acquiring firms by small and medium sized local firms. Journal of World Business, 46(1), 116-125.

Reddy, K. S., Nangia, V. K., and Agrawal, R. (2014). Farmers Fox Theory: Does a country's weak regulatory system benefit both the acquirer and the target firm? Evidence from Vodafone-Hutchison deal. International Strategic Management Review, 2(1), 56-67.

Sarala, R. M., Junni, P., Cooper, C. L., and Tarba, S. Y. (2014). A sociocultural perspective on knowledge transfer in mergers and acquisitions. Journal of Management, 0149206314530167.

Schuler, R. S., Khilji, S. E., and Ruël, H. (2015). 6. Role of human resource management in international mergers and acquisitions and international joint ventures in emerging markets. Handbook of Human Resource Management in Emerging Markets, 122.

Shah, S. M. (2013). Impact of Overseas Mergers and Acquisitions on Value Creation of Indian Companies. Available at SSRN 2461110.

Shah, S. M. (2013). Impact of Overseas Mergers and Acquisitions on Value Creation of Indian Companies. Available at SSRN 2461110.

Singh, P. (2012). Mergers and Acquisitions: Some Issues and Trends.International Journal of Innovations in Engineering and Technology (IJIET).

Weber, Y. (Ed.). (2013). Handbook of research on mergers and acquisitions. Edward Elgar Publishing.

Weber, Y., and Tarba, S. Y. (2013). Sociocultural Integration in Mergers and Acquisitions—New Perspectives. Thunderbird International Business Review,55(4), 327-331.

Weber, Y., and Yedidia Tarba, S. (2012). Mergers and acquisitions process: The use of corporate culture analysis. Cross Cultural Management: An International Journal, 19(3), 288-303.

Weber, Y., Rachman-Moore, D., and Tarba, S. Y. (2012). HR practices during post-merger conflict and merger performance. International Journal of Cross Cultural Management, 12(1), 73-99.

Whalley, J., and Curwen, P. (2012). Third time lucky? An exploration of Hutchison Whampoa's involvement in the mobile telecommunications industry.info, 14(2), 17-41.