BARCELONA/HONG KONG (Reuters) -Vodafone (VOD.L) shares climbed on Monday after the British mobile phone giant beat rival suitors with an $11.1 billion bid for a controlling stake in Hutchison Essar, India’s fourth-biggest cellphone firm.
The deal, announced on Sunday, gives Vodafone a powerful stake in the world’s fastest-growing mobile phone market which will help offset slowing growth in its core European operations.
But is also a high-stakes move from the world’s biggest mobile phone operator by subscribers outside China, which has been accused by some investors of overpaying for acquisitions.
The purchase of Hutchison Telecommunications’ (2332.HK) 67 percent stake in Hutchison Essar values the Indian firm at $18.8 billion, including debt.
At 1000 GMT Vodafone shares were up 2.5 percent at 153 pence, the biggest rise on the UK’s benchmark FTSE-100 index, suggesting the firm had struck the right balance.
“This begins to answer our key bear issue with Vodafone — the lack of emerging market exposure,” Investec Securities analysts wrote in a research note.
Vodafone said the deal meant about a third of its profits would come from emerging markets by 2012, compared with less than 20 percent currently.
“This acquisition is in the largest high-growth market in the world, where it is possible for us to acquire control,” Chief Executive Arun Sarin told analysts on a conference call. He said only about 13 percent of India’s population of 1.1 billion had a mobile phone, compared with about 40 percent in China and penetration rates of 100 percent in parts of Europe.
But, analysts also said Vodafone was paying a high price, and some were skeptical of its growth forecasts.
“Vodafone has agreed to pay nothing less than top dollar,” WestLB analysts wrote in a research note. “There is no doubting the potential of the Indian market, but we fear that Vodafone has paid up for too much of this potential.”
The deal is Vodafone’s third-biggest ever and it beat three rival suitors for the stake, India’s Reliance Communications (RLCM.BO) and the Hinduja and Essar groups, the last of which owns 33 percent of Hutchison Essar.
Shares in Hong Kong billionaire Li Ka-shing’s Hutchison Telecommunications, which had risen 28 percent since November in anticipation of a sale, were suspended on Monday. The company was expected to make a statement later.
The transaction is the fourth-largest involving an Asian company outside Japan, based on Dealogic figures, and marks another lucrative exit for Li, whose dealmaking is legendary.
“They hit the jackpot again,” said Francis Lun, general manager at Fulbright Securities in Hong Kong. “Considering that they only put HK$20 billion (US$2.6 billion) into India, it has to be a good deal for them.”
Shares in Hutchison Telecom’s parent, ports-to-property conglomerate Hutchison Whampoa Ltd. (0013.HK), rose 0.68 percent and its bond spreads tightened on hopes that deal proceeds will be used to lower debt and improve its credit profile. Standard & Poor’s said net debt and liquidity at Hutchison Whampoa are likely to benefit from the disposal.
Shares in No. 2 Indian carrier Reliance, seen as Vodafone’s biggest bid rival, ended down 4.55 percent.
Vodafone is a serial acquirer and its 180-billion-euro ($234 billion) purchase of Germany’s Mannesmann in 2000 was the biggest company takeover in history.
But it has also been accused of overpaying. It took an impairment charge of more than 23 billion pounds in its last financial year, largely against past acquisitions, leading it to report the biggest ever annual loss by a European company.
“We have got this at a very reasonable price and we’re thrilled … We are feeling very good in terms of talking to shareholders and the returns we will provide them,” said Sarin, a U.S. citizen who was born in India.
But analysts said the deal was not cheap. Macquarie said the price valued Hutchison Essar at a forward enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization) multiple of 16.4 times. Larger rivals Bharti (BRTI.BO) and Reliance trade at about 13.6 times and 11.7 times.
India’s mobile phone market is expected to grow to 500 million users by 2010 from 150 million now, adding 5 million to 6 million users a month