The terms of the deal were announced Sunday, as Vodafone secured a 67% stake in the cellular provider for $11.1 billion. The deal ultimately values the cellular provider at $18.8 billion, including debt, which lands the final value in middle of the $16-20 million range analysts were expecting.
Sources such as Bloomberg and the Wall Street journal have expressed skepticism, saying the price may be too high but the market has reacted positively, sending the shares up over 2% in early trading today. Investors should be cautious though, as Vodafone's CEO, Arun Sarin, has said the deal will add to their earnings five years after completion (Bloomberg.com). Also, it will take four Indian cellphone users to generate the revenue that one European customer brings in. That said, operating margins in for Hutchison Essar have been higher than Vodafone's and the rapid growth should provide the volume necessary to offset the four-to-one ratio.
I like Vodafone's aggressiveness, as they are facing saturation in Europe and red ink on their income statement. They have expanded in Turkey, South Africa and Egypt and are transforming their business to grow with the emerging markets. Content deals with Google (GOOG), Myspace and YouTube add value to their existing markets. With the Telsim Mobil deal in Turkey, Sarin displayed his sure-handedness in turning that company around and distanced himself from the missteps of previous management. He has displayed skills in approaching the emerging markets and this shouldn't change with his native country.
For investors looking to buy Vodafone, I would advise doing so for the long-term. This is by no means a short-term investment with huge profits right around the corner. There are still network kinks to work out in India, with decisions to be made regarding WiMax vs. 3G service as well as investments into rural infrastructure and, as Sarin mentioned, a few years before the revenue comes in. It is a good market to be an early mover in though, and will provide its suppliers with fantastic growth, projected to be around 30% this year. For more information on India's cellular market, you can learn more from one of my previous articles, Capitalizing On India's Cellular Market.
VOD 1-yr chart