Project on Vodafone

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Submitted in partial fulfillment of the requirements for the

award of the degree of

BACHELOR OF BUSINESS ADMINISTRATION

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of:-

Submitted by:-

Submitted

by:- M

Mrr. . YYaattiin n GGooeel l PaPannkkaaj j SSiinnggllaa (Assistant

(Assistant manager manager BBA BBA department) department) Roll Roll no. no. 17141714 B

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DECLARATION

IIPankaj SinglaPankaj Singlaa student of B.B.A (Session 2010-20013) ata student of B.B.A (Session 2010-20013) atVaish InstituteVaish Institute Of Management and

Of Management and TechnologyTechnology (VIMT), Rohtak(VIMT), Rohtak. My institute Roll No. is 1714. My institute Roll No. is 1714

I have to declare that the project entitled

I have to declare that the project entitled“ “

Pre- Merger and Post- Merger effect on

Vodafone Hutch deal

Vodafone Hutch deal”

”

is an original work and the same has not been submitted to anyis an original work and the same has not been submitted to any other institution for the award of any other Degree.

other institution for the award of any other Degree.

I certify that it is my original work and have not been copied from any other student or any I certify that it is my original work and have not been copied from any other student or any other source which can violate the

other source which can violate the Maharshi Dayanand UniversityMaharshi Dayanand University. If in case my work is. If in case my work is found copied, I shall be myself responsible for the consequences arising out of It.

found copied, I shall be myself responsible for the consequences arising out of It.

PANKAJ SINGLA PANKAJ SINGLA

ACKNOWLEDGEMENT

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This project

“P

re- Merger and Post- Merger effect on Vodafone Hutch deal

”

is a kind effort, which is undertaken during fourth semester as a dissertation report. is a kind effort, which is undertaken during fourth semester as a dissertation report.

Before actually starting my project, first of all I want to thank almighty God by whose grace I Before actually starting my project, first of all I want to thank almighty God by whose grace I would be able to achieve my objectives of study.

would be able to achieve my objectives of study.

Intention, dedication, concentration and hard work are very much essential to complete any Intention, dedication, concentration and hard work are very much essential to complete any task. But still it needs a lot of support, guidance, assistance, co-operation of people to make it task. But still it needs a lot of support, guidance, assistance, co-operation of people to make it successful.

successful.

I bear to imprint of my people who have given me, their precious ideas and times to enable I bear to imprint of my people who have given me, their precious ideas and times to enable me to complete the research and the project report. I want to thanks them for their continuous me to complete the research and the project report. I want to thanks them for their continuous support in my research and writing efforts.

support in my research and writing efforts.

I wish to record my thanks and indebtedness to

Yatin Goel-

Faculty, VIMT Rohtak,Faculty, VIMT Rohtak,

whose inspiration dedication and helping nature provided me the kind of guidance necessary whose inspiration dedication and helping nature provided me the kind of guidance necessary to complete this project.

to complete this project. I am extremely grateful to

I am extremely grateful to Vaish Institute Of Management and TechnologyVaish Institute Of Management and Technology for grantingfor granting me permission to be part of this college.

me permission to be part of this college. I would also like to acknowledge

I would also like to acknowledge my parentsmy parents and my batch matesand my batch mates for their guidance andfor their guidance and blessings.

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PREFACE PREFACE

BBA is a stepping-stone to the management carrier and to develop good manager it is BBA is a stepping-stone to the management carrier and to develop good manager it is necessary that the theoretical knowledge must be supplemented with exposure to real necessary that the theoretical knowledge must be supplemented with exposure to real environment. Theoretical knowledge just provides the base and it is not sufficient to produce environment. Theoretical knowledge just provides the base and it is not sufficient to produce a good manager that is why Practical Training is necessary.

a good manager that is why Practical Training is necessary.

Therefore Dissertation Report is an essential requirement for the student of BBA. This report Therefore Dissertation Report is an essential requirement for the student of BBA. This report not only helps the students to utilize his skills properly and learn field realities.

not only helps the students to utilize his skills properly and learn field realities.

In accordance with the requirement of BBA course I have done my project in the area of In accordance with the requirement of BBA course I have done my project in the area of Finance project undertaken,

Finance project undertaken,

“P

re- Merger and Post- Merger effect on Vodafone

Hutch deal

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Table of content

CHAPTER

CHAPTER No.

No. PARTICULARS

PARTICULARS

1

2

2 Introduction to project

Introduction to project

Review of literature

3

3 The

The deal

deal

Introduction

Reasons for the acquisition

Benefits to Vodafone

4

4 Research

Research Methodology

Methodology



Objective of the study



Research design



Data collection

5

5 Data anal

Data analysis & interp

ysis & interpretation

retation

6

7

7 Findings

Findings

Need

Need of the stud

of the studyy

8

8 Bibliogra

Bibliography

phy

Annexure

Financial sta

Financial statement of V

tement of Vodafone

odafone

For the year en

For the year ended 31

ded 31

st st

March 2005-2010

Tax verdict

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Chapter 1

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INTRODUCTION

In an increasingly open global economy, where old prejudices against In an increasingly open global economy, where old prejudices against

foreign ‗predators‘ and old fears of economic colonization have been replaced

foreign ‗predators‘ and old fears of economic colonization have been replaced by a hunger by a hunger

for capital, Mergers and Acquisitions (M&A) are welcome everywhere. for capital, Mergers and Acquisitions (M&A) are welcome everywhere.

In human aspects of M&A

In human aspects of M&A‘‘s we used a not-too-original distinctions we used a not-too-original distinction between mergers, acquisitions and joint ventures. M&As repr

between mergers, acquisitions and joint ventures. M&As represented a ‗marriage‘, while jointesented a ‗marriage‘, while joint ventures meant ‗cohabiting‘. Although mergers and acquisitions are generally treated

ventures meant ‗cohabiting‘. Although mergers and acquisitions are generally treated as if as if

they are one and the same thing, they are legally different transactions. In an acquisition, one they are one and the same thing, they are legally different transactions. In an acquisition, one company buys sufficient numbers of shares as to gain control of the other

company buys sufficient numbers of shares as to gain control of the other — — the acquiredthe acquired company. Acquisitions may be welcomed by the acquired company or they may be company. Acquisitions may be welcomed by the acquired company or they may be vigorously contested.

vigorously contested.

There are several alternative methods of consolidation with each There are several alternative methods of consolidation with each

method having its own strengths and weaknesses, depending on the given situation. However, method having its own strengths and weaknesses, depending on the given situation. However, the most commonly adopted method of consolidation by firms has been through M&As.

the most commonly adopted method of consolidation by firms has been through M&As. Though both mergers and acquisitions lead to two formerly independent firms becoming a Though both mergers and acquisitions lead to two formerly independent firms becoming a commonly controlled entity, there are subtle differences between the two. While acquisition commonly controlled entity, there are subtle differences between the two. While acquisition refers to acquiring control of one corporation by another, merger is a particular type of refers to acquiring control of one corporation by another, merger is a particular type of acquisition that results in a combination of both the assets and liabilities of acquired and acquisition that results in a combination of both the assets and liabilities of acquired and acquiring firms. In a merger, only one organization survives and the other goes out of acquiring firms. In a merger, only one organization survives and the other goes out of

existence. There are also ways to acquire a firm other than a merger such as stock acquisition existence. There are also ways to acquire a firm other than a merger such as stock acquisition or asset acquisition.

or asset acquisition.

The Vodafone-Hutch deal is one of the largest M&A deal executed by The Vodafone-Hutch deal is one of the largest M&A deal executed by overseas firm in I

overseas firm in Indian subcontinent. ndian subcontinent. Today Vodafone business in Today Vodafone business in India has beenIndia has been

successfully integrated into the group and now has over 44 million customers, with over 50 successfully integrated into the group and now has over 44 million customers, with over 50 per cent pro forma revenue growth. Revenues increased by 50 per cent during the year driven per cent pro forma revenue growth. Revenues increased by 50 per cent during the year driven

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by rapid expansion of the customer base with an average of 1.5 million net additions per by rapid expansion of the customer base with an average of 1.5 million net additions per month since acquisition

month since acquisition

In today‘s volatile market, where major M&A deals are

In today‘s volatile market, where major M&A deals are showing negativeshowing negative

growth or companies are looking for Government Bailout money, Vodafone acquisition of growth or companies are looking for Government Bailout money, Vodafone acquisition of

hutch is a major contributor to its revenue .While India‘s revenues gr

hutch is a major contributor to its revenue .While India‘s revenues gr ew by 29.6 percent otherew by 29.6 percent other APAC countries posted far lower growths at 10 percent in Egypt, 7 percent in Australia and 3 APAC countries posted far lower growths at 10 percent in Egypt, 7 percent in Australia and 3 percent in New Zealand at constant exchange rates.

percent in New Zealand at constant exchange rates.

COMPANY PROFILE

Vodafone Essar

VODAFONE ESSAR LIMITED

Type: Private

Founded: 1994as of Hutchison Essar

Headquarters: Mumbai, India

Key People: Asim Ghosh

Key People: Asim Ghosh – – M.DM.D

Industry: Telecom

Products: Mobile Telecommunication

operator

Website: Vodafone India

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PRODUCTS OF THE COMPANY

Vodafone Prepaid Cellphone connection



 Back to PhonesBack to Phones

Go mobile with a Vodafone Prepaid cell mobile phone and control how much Go mobile with a Vodafone Prepaid cell mobile phone and control how much you spend with the best Prepaid cellphone tariff plan. Buy a special Prepaid mobile handset you spend with the best Prepaid cellphone tariff plan. Buy a special Prepaid mobile handset for your Vodafone Prepaid cellphone connection with our Prepaid mobile handset offers. To for your Vodafone Prepaid cellphone connection with our Prepaid mobile handset offers. To keep talking without any talktime or validity hassles make use of our flexible recharging keep talking without any talktime or validity hassles make use of our flexible recharging options for your Vodafone Prepaid SIM cards: Prepaid recharge cards, eTopUp and Direct options for your Vodafone Prepaid SIM cards: Prepaid recharge cards, eTopUp and Direct

Top-Top-Up. It‘s easy to find a Prepaid recharUp. It‘s easy to find a Prepaid recharge topup too: we‘ve got Prepaid outlets everywhere,ge topup too: we‘ve got Prepaid outlets everywhere,

so that you can stay connected wherever you are. so that you can stay connected wherever you are.

And that‘s not all –

And that‘s not all – you can also subscribe to our unique Prepaid cellphone services andyou can also subscribe to our unique Prepaid cellphone services and

Prepaid mobilephone offers and make the most of your Vodafone Prepaid SIM cards in India. Prepaid mobilephone offers and make the most of your Vodafone Prepaid SIM cards in India.

Find a Prepaid mobile phone tariff plan Find a Prepaid mobile phone tariff plan

Reach out to the world with a Vodafone Prepaid SIM card without worrying Reach out to the world with a Vodafone Prepaid SIM card without worrying about mobile Prepaid recharge minutes and Prepaid phone rates. Select a Prepaid mobile about mobile Prepaid recharge minutes and Prepaid phone rates. Select a Prepaid mobile phone tariff plan that works for you

phone tariff plan that works for you.. Choose your Prepaid mobile phone tariff planChoose your Prepaid mobile phone tariff plan

Prepaid phone services

Subscribe to Vodafone‘s unique Prepaid cellphone services and make the most Subscribe to Vodafone‘s unique Prepaid cellphone services and make the most

of your Vodafone mobile phone. For our Prepaid cellular services

of your Vodafone mobile phone. For our Prepaid cellular services,,click hereclick here

Bonus Cards Bonus Cards

Charge your Prepaid phone and enjoy slashed Prepaid phone rates with Bonus Charge your Prepaid phone and enjoy slashed Prepaid phone rates with Bonus Cards for your Vodafone Prepaid cellphone tariff plans.

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Vodafone Postpaid

Go Vodafone with a new Vodafone Postpaid connection and talk Go Vodafone with a new Vodafone Postpaid connection and talk without worrying about your bill. Become a Vodafone Postpaid user with a Postpaid mobile without worrying about your bill. Become a Vodafone Postpaid user with a Postpaid mobile

handset for your SIM by making use of Vodafone‘s mobile handset offers. Make the most out handset for your SIM by making use of Vodafone‘s mobile handset offers. Make the most out

of every penny you spend by choosing the right Vodafone Postpaid talkplan. And if you want of every penny you spend by choosing the right Vodafone Postpaid talkplan. And if you want to know which plan suits your usage best, ask us

to know which plan suits your usage best, ask us – – we‘ll be happy to help.we‘ll be happy to help. What‘s more –

What‘s more – you can also subscribe to our Vodafone Postpaid offersyou can also subscribe to our Vodafone Postpaid offers and reduce expenses even more. Take a look at the various services we have for you and use and reduce expenses even more. Take a look at the various services we have for you and use your phone for many more than just making calls.

your phone for many more than just making calls.

And when it comes to paying you bill that‘s easy too! We‘ve got a wide And when it comes to paying you bill that‘s easy too! We‘ve got a wide

variety of Vodafone Postpaid bill payment options. Choose the payment option that works variety of Vodafone Postpaid bill payment options. Choose the payment option that works best for you. If you

best for you. If you need help, come to us we‘ll be happy to help!need help, come to us we‘ll be happy to help!

Sounds good? Check out all the benefits that come along with a Vodafone Sounds good? Check out all the benefits that come along with a Vodafone

Postpaid SIM card, and it‘ll sound even better! Postpaid SIM card, and it‘ll sound even better!

World Calling Cards

Save up to 30% on your ISD & STD calls with World Calling Card from Save up to 30% on your ISD & STD calls with World Calling Card from Vodafone for your Vodafone mobile phones.

Vodafone for your Vodafone mobile phones.

World Calling Card from Vodafone is a Prepaid long distance calling card World Calling Card from Vodafone is a Prepaid long distance calling card that you can use with your Vodafone Prepaid and Postpaid mobile phones to make ISD & that you can use with your Vodafone Prepaid and Postpaid mobile phones to make ISD &

STD calls. That‘s right –

STD calls. That‘s right – you don‘t need individual ISD calling cards and STD calling cardsyou don‘t need individual ISD calling cards and STD calling cards

anymore. With the help of this Prepaid World Calling Card, you can keep a tab on your anymore. With the help of this Prepaid World Calling Card, you can keep a tab on your long-distance call expenses. Plus no security deposit.

distance call expenses. Plus no security deposit.

It‘s easy to buy World Calling Cards in India. World Calling Cards are It‘s easy to buy World Calling Cards in India. World Calling Cards are

available at your nearest Vodafone Store, Vodafone Mini Store or at any shop that displays available at your nearest Vodafone Store, Vodafone Mini Store or at any shop that displays

the ―World Calling Card‖ sign. the ―World Calling Card‖ sign.

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World Calling Card rates World Calling Card rates

Make the most of your Vodafone mobile phone while making long distance Make the most of your Vodafone mobile phone while making long distance calls with the special World Calling Card rates meant to help you save money

calls with the special World Calling Card rates meant to help you save money.. Check outCheck out

World Calling Card rates

Using our international Prepaid calling cards Using our international Prepaid calling cards

Scratch the silver foil on the cell phone calling card for India to get your secret Scratch the silver foil on the cell phone calling card for India to get your secret 12-digit PIN. Dial the toll free number on the back or 50118 / 50218 and enter the PIN from 12-digit PIN. Dial the toll free number on the back or 50118 / 50218 and enter the PIN from your Prepaid

your Prepaid World Calling CardWorld Calling Card..

To make an STD call with your Prepaid mobile phone card, dial ´0´ followed by the STD To make an STD call with your Prepaid mobile phone card, dial ´0´ followed by the STD code and then the phone number.

code and then the phone number.

To make an ISD call with your Prepaid mobile card, dial ´00´ followed by the ISD code and To make an ISD call with your Prepaid mobile card, dial ´00´ followed by the ISD code and the phone number.

the phone number.

For more information on using your Prepaid phone card,

For more information on using your Prepaid phone card, click hereclick here

Checking your balance Checking your balance

To know how much you‘ve spent on your Vodafone cell phone wit

To know how much you‘ve spent on your Vodafone cell phone wit h lower h lower

overseas Calling Card rates, SMS WCCBAL <12 digit PIN> to 111 (toll free) overseas Calling Card rates, SMS WCCBAL <12 digit PIN> to 111 (toll free)

Making payments for your Prepaid phone calling cards Making payments for your Prepaid phone calling cards

You will never have to face any hassles of bill payments for this Prepaid phone You will never have to face any hassles of bill payments for this Prepaid phone calling card because there simply are no bills. With this Prepaid phone Calling Card, your calling card because there simply are no bills. With this Prepaid phone Calling Card, your charges get deducted as you speak.

charges get deducted as you speak.

For more information on ISD calling cards and STD calling cards, dial 50119 (toll free) For more information on ISD calling cards and STD calling cards, dial 50119 (toll free)

Gulf Calling Card Gulf Calling Card

Now you can call the Gulf at the lowest possible calling card rates with the best Now you can call the Gulf at the lowest possible calling card rates with the best Prepaid phone card for the Gulf

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Vodafone PCO Vodafone PCO

Want to start making some money? Install a Vodafone PCO in your house or Want to start making some money? Install a Vodafone PCO in your house or shop, and start earning today with fixed cellular terminals. It´s easy to install, maintain and shop, and start earning today with fixed cellular terminals. It´s easy to install, maintain and use

use – – and provides uninterrupted service. It doesn´t even take up that much space!and provides uninterrupted service. It doesn´t even take up that much space! Read moreRead more

Vodafone Handyphone

Introducing the landline that‘s loaded with all the features of a cell phone Introducing the landline that‘s loaded with all the features of a cell phone

--including low call rates. And Vodafone Handyphone aren‘t that expensive either. You can including low call rates. And Vodafone Handyphone aren‘t that expensive either. You can

make one yours for as little as Rs 1999. make one yours for as little as Rs 1999.

Key features: Key features:



 Calls to any 3 Vodafone numbers @ 20p / minCalls to any 3 Vodafone numbers @ 20p / min 

 Calls to all local mobile phones @ 40p / minCalls to all local mobile phones @ 40p / min 

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Chapter 2

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Review of literature

Vodafone Essar, previously Hutchison Essar is a cellula operator in India that Vodafone Essar, previously Hutchison Essar is a cellula operator in India that covers 16 telecom circles in India. Despite the official name being Vodafone Essar, its covers 16 telecom circles in India. Despite the official name being Vodafone Essar, its products are simply branded Vodafone. It offers both prepaid and postpaid GSM cellular products are simply branded Vodafone. It offers both prepaid and postpaid GSM cellular phone coverage throughout India and is especially strong in the major metros.

phone coverage throughout India and is especially strong in the major metros.

Vodafone Essar provides 2G services based on 900Mhz and 1800Mhz digital Vodafone Essar provides 2G services based on 900Mhz and 1800Mhz digital GSM technology, offering voice and data services in 16 of the country's 23 licence areas. GSM technology, offering voice and data services in 16 of the country's 23 licence areas.

Ownership:-Vodafone Essar is owned by Ownership:-Vodafone 52%, Essar Group 33%, and other Indian Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Indian nationals, 15%. On 11 February 2007, Vodafone agreed to acquire the controlling interest of nationals, 15%. 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 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 Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on 8 May 33%. The whole company was valued at USD 18.8 billion. The transaction closed on 8 May 2007.

2007.

Previous brands Previous brands:-

:-In December 2006, Hutch Essar re-launched the "Hutch" brand nationwide, In December 2006, Hutch Essar re-launched the "Hutch" brand nationwide,

consolidating its services under a single identity. The Company entered into agreement with consolidating its services under a single identity. The Company entered into agreement with NTT DoCoMo to launch i-mode mobile Internet service in India during 2007.

NTT DoCoMo to launch i-mode mobile Internet service in India during 2007.

The company used to be named Hutchison Essar, reflecting the name of its previous owner, The company used to be named Hutchison Essar, reflecting the name of its previous owner, Hutchison. However, the brand was marketed as Hutch. After getting the necessary

Hutchison. However, the brand was marketed as Hutch. After getting the necessary

government approvals with regards to the acquisition of a majority by the Vodafone Group, government approvals with regards to the acquisition of a majority by the Vodafone Group, the company was rebranded as Vodafone Essar.

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Chapter 3

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The Deal

Vodafone is a mobile network operator with its headquarters in Vodafone is a mobile network operator with its headquarters in Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network Newbury, Berkshire, England, UK. It is the largest mobile telecommunications network company in the world by turnover and has a market value of about £75 billion (August 2008). company in the world by turnover and has a market value of about £75 billion (August 2008). Vodafone currently has operations in 25 countries and partner networks in a further 42

Vodafone currently has operations in 25 countries and partner networks in a further 42 countries. The name Vodafone comes from Voice data fone, chosen by the company to countries. The name Vodafone comes from Voice data fone, chosen by the company to

―reflect the provision of voice and data services over mobile phone ―reflect the provision of voice and data services over mobile phones.s.

Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Vodafone Essar is owned by Vodafone 52%, Essar Group 33%, and other Indian nationals, 15%. On February 11, 2007, Vodafone agreed to acquire the controlling Indian nationals, 15%. On February 11, 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 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 Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on May 8, 2007.

on May 8, 2007.

As of Nov 2008 Vodafone Essar has 58764164 or 23.57% of total 249349436 As of Nov 2008 Vodafone Essar has 58764164 or 23.57% of total 249349436

GSM mobile connections in India. Vodafone India‘s share in the mobile phone operator GSM mobile connections in India. Vodafone India‘s share in the mobile phone operator

market rose to 18 percent. market rose to 18 percent.

Hutch-Essar

Hutch Essar was a leading Indian telecommunications mobile operator with Hutch Essar was a leading Indian telecommunications mobile operator with 23.3 million customers at 31 December 2006, representing a 16.4% national market share. 23.3 million customers at 31 December 2006, representing a 16.4% national market share. Hutch Essar operates in 16 circles and has licences in an additional six circles. In the year to Hutch Essar operates in 16 circles and has licences in an additional six circles. In the year to 31 December 2005, Hutch Essar reported revenue of US$1,282 million, EBITDA of US$415 31 December 2005, Hutch Essar reported revenue of US$1,282 million, EBITDA of US$415 million, and operating profit of US$313 million. In the six months to 30 June 2006, Hutch million, and operating profit of US$313 million. In the six months to 30 June 2006, Hutch Essar reported revenue of US$908 million, EBITDA of US$297 million, and operating profit Essar reported revenue of US$908 million, EBITDA of US$297 million, and operating profit of US$226 million.

of US$226 million.

Up until January 2006, Hutch Essar had licences in 13 circles, of which nine Up until January 2006, Hutch Essar had licences in 13 circles, of which nine have 900 MHz spectrum. In January 2006, Hutch Essar acquired BPL, thereby adding three have 900 MHz spectrum. In January 2006, Hutch Essar acquired BPL, thereby adding three circles, each operating with 900 MHz spectrum. In October 2006, Hutch Essar acquired circles, each operating with 900 MHz spectrum. In October 2006, Hutch Essar acquired Spacetel, adding six further licences, with operations planned to be launched during 2007 Spacetel, adding six further licences, with operations planned to be launched during 2007

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Did Vodafone overpay for a stake in Hutchison Essar? Did Vodafone overpay for a stake in Hutchison Essar?

Vodafone

Vodafone ((VODVOD)), a British mobile telecom operator, has set a foot India, a British mobile telecom operator, has set a foot India with a purchase of 67% stake in Hutchison Essar. The bid valued the company, including $2 with a purchase of 67% stake in Hutchison Essar. The bid valued the company, including $2 billion debt, at $18.8 billion. Hutch, at the end of December 2006, had little less than 24 billion debt, at $18.8 billion. Hutch, at the end of December 2006, had little less than 24 million subscribers in India.

million subscribers in India.

WHY VODAFONE TOOK OVER HUTCH?

THE INDIAN ADVANTAGE:

1.

1. Since privatization of the telecom sector in 1994,the competition has increasedSince privatization of the telecom sector in 1994,the competition has increased manifold and India has emerged to be second largest telecom market.

manifold and India has emerged to be second largest telecom market. 2.

2. Vodafone needed to make an impact in the emerging markets because its traditionalVodafone needed to make an impact in the emerging markets because its traditional European markets had been saturated by 2005.

European markets had been saturated by 2005. 3.

3. India was chosen over China because india‘s monthly mobile subscription addotionIndia was chosen over China because india‘s monthly mobile subscription addotion had overtaken china‘s at around 6 million.

had overtaken china‘s at around 6 million.

4.

4. Penetration rate of mobiles in india was low and was expected to go up significantlyPenetration rate of mobiles in india was low and was expected to go up significantly in the coming years.

in the coming years. 5.

5. It was expected that india would soon be entering 3 G services. Vodafone experienceIt was expected that india would soon be entering 3 G services. Vodafone experience in the European market was an added advantage and it was felt that whenever these in the European market was an added advantage and it was felt that whenever these services would be stared, Vodafone would have a competitive advantage over its services would be stared, Vodafone would have a competitive advantage over its competitive.

competitive.

THE HUTCH

ADVANTAGE:-1.

1. Hutch was one of the key players in the Indian telecom markets.Hutch was one of the key players in the Indian telecom markets. 2.

2. Hutch was one of the most profitable telecom providers in the country, with the yearlyHutch was one of the most profitable telecom providers in the country, with the yearly revenue growth close to 51%.

revenue growth close to 51%. 3.

3. They had a nationwide presence in india with the expansion drive that they hadThey had a nationwide presence in india with the expansion drive that they had undertaken and manage to

undertaken and manage to get 22 get 22 out of 23 out of 23 licenses licenses areas or circles.areas or circles.

4.Hutch , being such a big player had a very high brand recall value in the minds of its 4.Hutch , being such a big player had a very high brand recall value in the minds of its existing and potential new customers mainly because of its excellent advertisement existing and potential new customers mainly because of its excellent advertisement campaigns.

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5.They used latest technology which meant that the customers were assured of good 5.They used latest technology which meant that the customers were assured of good quality,and so remained loyal to the brand.

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Vodafone agrees to acquire control of Hutch Essar

Vodafone agrees to acquire control of Hutch Essar in India

in India

February 12, 2007

February 12, 2007 -- Vodafone announces that -- Vodafone announces that it has agreed it has agreed to acquire a to acquire a controllingcontrolling

interest in Hutchison Essar Limited (―Hutch Essar

interest in Hutchison Essar Limited (―Hutch Essar‖), a leading operator in the fast ‖), a leading operator in the fast growinggrowing

Indian mobile market, via its subsidiary Vodafone International Holdings B.V. Vodafone also Indian mobile market, via its subsidiary Vodafone International Holdings B.V. Vodafone also

announces that it has signed a memorandum of understanding (―MOU‖) with Bharti Airtel announces that it has signed a memorandum of understanding (―MOU‖) with Bharti Airtel Limited (―Bharti‖) on infrastructur

Limited (―Bharti‖) on infrastructur e sharing and that it has granted an option to a Bhartie sharing and that it has granted an option to a Bharti group company to buy its 5.6% direct interest in Bharti.

group company to buy its 5.6% direct interest in Bharti. The key highlights are:

The key highlights are:

Acquisition of a controlling interest in Hutch Essar Acquisition of a controlling interest in Hutch Essar

o

o Vodafone announces it has agreed to acquire companies that control a 67% interest inVodafone announces it has agreed to acquire companies that control a 67% interest in

Hutch Essar from Hutchison Telecom International Limited (―HTIL‖) for a Hutch Essar from Hutchison Telecom International Limited (―HTIL‖) for a cashcash

consideration of US$11.1 billion (£5.7 billion) consideration of US$11.1 billion (£5.7 billion) o

o Vodafone will assume net debt of approximately US$2.0 billion (£1.0 billion)Vodafone will assume net debt of approximately US$2.0 billion (£1.0 billion) o

o The transaction implies an enterprise value of US$18.8 billion (£9.6 billion) for HutchThe transaction implies an enterprise value of US$18.8 billion (£9.6 billion) for Hutch Essar

Essar o

o The acquisition meets Vodafone‘s stated financial investment criteria InfrastructureThe acquisition meets Vodafone‘s stated financial investment criteria Infrastructure sharing MOU with Bharti

sharing MOU with Bharti o

o Whilst Hutch Essar and Bharti will continue to compete independently, Vodafone andWhilst Hutch Essar and Bharti will continue to compete independently, Vodafone and Bharti have entered into a MOU relating to a comprehensive range of infrastructure Bharti have entered into a MOU relating to a comprehensive range of infrastructure sharing options in India between Hutch Essar and Bharti

sharing options in India between Hutch Essar and Bharti o

o Infrastructure sharing is expected to reduce the total cost of deliveringInfrastructure sharing is expected to reduce the total cost of delivering

telecommunication services, especially in rural areas, enabling both parties to expand telecommunication services, especially in rural areas, enabling both parties to expand network coverage more quickly and to offer more affordable services to a broader base network coverage more quickly and to offer more affordable services to a broader base of the Indian population

of the Indian population

Local partners Local partners

o

o The Essar Group (―Essar‖) currently holds a 33% interest in Hutch Essar and VodafoneThe Essar Group (―Essar‖) currently holds a 33% interest in Hutch Essar and Vodafone will make an offer to buy this stake at the equivalent price per share it has agreed with will make an offer to buy this stake at the equivalent price per share it has agreed with HTIL

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o

o Vodafone‘s arrangements with the other existing minority partners will result in aVodafone‘s arrangements with the other existing minority partners will result in a

shareholder structure post acquisition that meets the requirements of India‘s

shareholder structure post acquisition that meets the requirements of India‘sforeignforeign ownership rules

ownership rules

10% economic interest in Bharti 10% economic interest in Bharti

o

o Vodafone has granted a Bharti group company an option, subject to completion of theVodafone has granted a Bharti group company an option, subject to completion of the Hutch Essar acquisition, to buy its 5.6% listed direct interest in Bharti for US$1.6 Hutch Essar acquisition, to buy its 5.6% listed direct interest in Bharti for US$1.6 billion (£0.8 billion) which compares with the acquisition price of US$0.8 billion (£0.5 billion (£0.8 billion) which compares with the acquisition price of US$0.8 billion (£0.5 billion)

billion) o

o If the option is not exercised, Vodafone would be able to sell this 5.6% interestIf the option is not exercised, Vodafone would be able to sell this 5.6% interest o

o Vodafone will retain its 4.4% indirect interest in Bharti, underpinning its ongoingVodafone will retain its 4.4% indirect interest in Bharti, underpinning its ongoing relationship

relationship

Commenting on the transaction,

Commenting on the transaction,Arun Sarin, Chief Executive of VodafoneArun Sarin, Chief Executive of Vodafone, said: ―, said: ―We areWe are delighted to be deepening our involvement in the Indian mobile market with the full range of delighted to be deepening our involvement in the Indian mobile market with the full range of Vodafone’s products, services and brand. This announcement is clear evidence of how we are Vodafone’s products, services and brand. This announcement is clear evidence of how we are executing our strategy of developing our presence in emerging markets. We have concluded executing our strategy of developing our presence in emerging markets. We have concluded this transaction within our stated financial investment criteria and we are confident that this this transaction within our stated financial investment criteria and we are confident that this will prove to be an excellent investment for our shareholders. Hutch Essar is an impressive, will prove to be an excellent investment for our shareholders. Hutch Essar is an impressive, well run company that will fit well into the Vodafone Group.

well run company that will fit well into the Vodafone Group. ‖‖

Sir John Bond, Chairman of Vodafone

Sir John Bond, Chairman of Vodafone, said: ―, said: ― India is de India is destined to stined to become one become one of theof the largest and most important mobile markets in the world and this acquisition will enable our largest and most important mobile markets in the world and this acquisition will enable our shareholders to benefit from our increased investment in this market. We also look forward to shareholders to benefit from our increased investment in this market. We also look forward to playing our

playing our part in depart in delivering livering the signifithe significant econcant economic and soomic and social benecial benefits which mfits which mobileobile telephony can bring to the people of India

telephony can bring to the people of India .‖.‖

Principal benefits

The principal benefits to Vodafone of the transaction are: The principal benefits to Vodafone of the transaction are: o

o AccelerateAccelerates Vodafone‘s move to a controlling position in a leading operator in thes Vodafone‘s move to a controlling position in a leading operator in the attractive and fast growing Indian mobile market

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o

o India is the world‘s 2nd most populated country with over 1.1 billion inhabitantsIndia is the world‘s 2nd most populated country with over 1.1 billion inhabitants o

o India is the fastest growing major mobile market in the world, with around 6.5India is the fastest growing major mobile market in the world, with around 6.5 million monthly net adds in the last quarter

million monthly net adds in the last quarter o

o India benefits from strong economic fundamentals with expected real GDPIndia benefits from strong economic fundamentals with expected real GDP growth in high single digits

growth in high single digits o

o Hutch Essar delivers a strong existing platform in IndiaHutch Essar delivers a strong existing platform in India o

o nationwide presence with recent expansion to 22 out of 23 licence areasnationwide presence with recent expansion to 22 out of 23 licence areas

(―circles‖) (―circles‖)

o

o 23.3 million customers as at 31 December 2006, equivalent to a 16.4%23.3 million customers as at 31 December 2006, equivalent to a 16.4% nationwide market share

nationwide market share o

o year-on-year revenue growth of 51% and an EBITDA margin of 33% in the sixyear-on-year revenue growth of 51% and an EBITDA margin of 33% in the six months to 30 June 2006

months to 30 June 2006 o

o experienced and highly respected management teamexperienced and highly respected management team o

o Driving additional value in Hutch EssarDriving additional value in Hutch Essar o

o accelerated network investment driving penetration and market share growthaccelerated network investment driving penetration and market share growth o

o infrastructure sharing MOU with Bharti plans to reduce substantially network infrastructure sharing MOU with Bharti plans to reduce substantially network opex and capex.

opex and capex. o

o potential for Hutch Essar to bring Vodafone‘s inno potential for Hutch Essar to bring Vodafone‘s innovative products and servicesvative products and services

to the Indian market, including Vodafone‘s focus on total communication to the Indian market, including Vodafone‘s focus on total communication

solutions for customers solutions for customers o

o Vodafone and Hutch Essar both expected to benefit from increased purchasingVodafone and Hutch Essar both expected to benefit from increased purchasing power and the sharing of best practices

power and the sharing of best practices o

o Increases Vodafone‘s presence in higher growth emerging marketsIncreases Vodafone‘s presence in higher growth emerging markets o

o proportion of Group statutory EBITDA from the EMAPA region expected toproportion of Group statutory EBITDA from the EMAPA region expected to increase from below

increase from below o

o 20% in the financial year ending 31 March 2007 (FY2007) to over a third by20% in the financial year ending 31 March 2007 (FY2007) to over a third by FY2012.

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Operational plan for Hutch Essar Operational plan for Hutch Essar

Vodafone will execute an operational plan to build on the strengths of Hutch Essar in order to Vodafone will execute an operational plan to build on the strengths of Hutch Essar in order to capture the Indian

capture the Indian

telecom growth opportunity. telecom growth opportunity.

Key strategic objectives Key strategic objectives

In the context of penetration that is expected to exceed 40% by FY2012, Vodafone is In the context of penetration that is expected to exceed 40% by FY2012, Vodafone is

targeting a 20-25% market share within the same timeframe. The operational plan focuses on targeting a 20-25% market share within the same timeframe. The operational plan focuses on the following objectives:

the following objectives: o

o Expanding distribution and network coverageExpanding distribution and network coverage o

o Lowering the total cost of network ownershipLowering the total cost of network ownership o

o Growing market shareGrowing market share o

o Driving a customer focused approachDriving a customer focused approach

Site sharing Site sharing

The MOU outlines a process for achieving a more extensive level of site sharing and covers The MOU outlines a process for achieving a more extensive level of site sharing and covers both new and existing sites. Around one third of

both new and existing sites. Around one third of Hutch Essar‘s current sites are alreadyHutch Essar‘s current sites are already

shared with other Indian mobile operators and Vodafone is planning that around two thirds of shared with other Indian mobile operators and Vodafone is planning that around two thirds of total sites will be shared in the longer term.

total sites will be shared in the longer term.

The MOU recognises the potential for achieving further efficiencies by sharing infrastructure The MOU recognises the potential for achieving further efficiencies by sharing infrastructure with other mobile operators in India.

with other mobile operators in India.

The MOU envisages the potential, subject to regulatory approval and commercial The MOU envisages the potential, subject to regulatory approval and commercial

development, to extend the agreement to sharing of active infrastructure such as radio access development, to extend the agreement to sharing of active infrastructure such as radio access network and access transmission.

network and access transmission.

Financial assumptions Financial assumptions

As part of the operational plan, Vodafone expects to increase capital investment, particularly As part of the operational plan, Vodafone expects to increase capital investment, particularly in the first two to three years, with capex as a percentage of revenues reducing to the low in the first two to three years, with capex as a percentage of revenues reducing to the low teens by FY2012. The operational plan results in an FY2007-12 EBITDA CAGR percentage teens by FY2012. The operational plan results in an FY2007-12 EBITDA CAGR percentage around the mid-30s. Cash tax rates of 11-14% for FY2008-12 are expected due to various tax around the mid-30s. Cash tax rates of 11-14% for FY2008-12 are expected due to various tax incentives and will trend towards approximately 30-34% in the long term.

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As a result of this operational plan, the tra

As a result of this operational plan, the transaction meets Vodafone‘s stated financialnsaction meets Vodafone‘s stated financial

investment criteria, with a ROIC exceeding the local risk adjusted cost of capital in the fifth investment criteria, with a ROIC exceeding the local risk adjusted cost of capital in the fifth year and an IRR of around 14%.

year and an IRR of around 14%.

Further transaction details Further transaction details

The transaction is expected to close in the second quarter of calendar year 2007 The transaction is expected to close in the second quarter of calendar year 2007 and is conditional on Indian regulatory approval.

and is conditional on Indian regulatory approval.

HTIL‘s existing partners, who between them hold a 15% interest in Hutch HTIL‘s existing partners, who between them hold a 15% interest in Hutch

Essar, have agreed to retain

Essar, have agreed to retaintheir holdings and become partners their holdings and become partners with Vodafone. Vodafone‘swith Vodafone. Vodafone‘s

interest will be 52% following completion and Vodafone will exercise full operational control interest will be 52% following completion and Vodafone will exercise full operational control

over the business. If Essar decides to a

over the business. If Essar decides to accept Vodafone‘s offer, these local miccept Vodafone‘s offer, these local minority partnersnority partners

between them will increase their combined interest in Hutch Essar to 26%. between them will increase their combined interest in Hutch Essar to 26%.

In the event that the Bharti group company exercises its option over Vodafone‘s In the event that the Bharti group company exercises its option over Vodafone‘s

5.6% direct interest in Bharti, consideration will be received up to 18 months after 5.6% direct interest in Bharti, consideration will be received up to 18 months after completion of the Hutch Essar acquisition.

completion of the Hutch Essar acquisition.

Vodafone will continue to hold its 26% interest in Bharti Infotel Private Limited Vodafone will continue to hold its 26% interest in Bharti Infotel Private Limited

(―BIPL‖), which is equivalent to an indirect 4.4% economic interest in

(―BIPL‖), which is equivalent to an indirect 4.4% economic interest in Bharti. Vodafone willBharti. Vodafone will

now account for its entire interest as an investment. now account for its entire interest as an investment.

UBS Investment Bank acted as financial adviser to Vodafone. UBS Investment Bank acted as financial adviser to Vodafone.

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The provisions of Section 195, they came into force in 1939 in the old act. One never The provisions of Section 195, they came into force in 1939 in the old act. One never

intended to cover payments outside India and that was on assumption of the legislature - that intended to cover payments outside India and that was on assumption of the legislature - that was the enquiry committee report, which said that it is not intended to apply outside India. was the enquiry committee report, which said that it is not intended to apply outside India. Not only that that, it was the assumption of the Department, they had issued circulars on that Not only that that, it was the assumption of the Department, they had issued circulars on that basis, that tax deduction provisions do not apply outside India, even if overseas income were basis, that tax deduction provisions do not apply outside India, even if overseas income were taxable in India.

taxable in India.

Vodafone has very vehemently argued that even if Section 195 were to be Vodafone has very vehemently argued that even if Section 195 were to be interpreted the way the Department wants; to interpret to mean that a person would include a interpreted the way the Department wants; to interpret to mean that a person would include a non-resident, it has to be read contextually and the territorial limitation has to be read into non-resident, it has to be read contextually and the territorial limitation has to be read into that section. It cannot apply to any and every transaction that may happen outside India in that section. It cannot apply to any and every transaction that may happen outside India in relation to any goods or any services or any other assets that may happen outside India. relation to any goods or any services or any other assets that may happen outside India. Unless the Act specifically provides so and in the Act as it is standing today, I do not think Unless the Act specifically provides so and in the Act as it is standing today, I do not think there is any specific provision in the law.

there is any specific provision in the law.

The interpretation of Section 91, where they have said that the direct and The interpretation of Section 91, where they have said that the direct and the indirect aspect of the income is applicable only to the accruing; it does not apply when the indirect aspect of the income is applicable only to the accruing; it does not apply when there is a transfer of a capital asset situated in India. So the main argument and the issue there is a transfer of a capital asset situated in India. So the main argument and the issue really is whether the capital asset which is really transferred situated in India, the Indian asset really is whether the capital asset which is really transferred situated in India, the Indian asset may have the bearing on the value of the foreign asset. But is it really a capital asset which may have the bearing on the value of the foreign asset. But is it really a capital asset which was in India. That is really the issue, which will have to be sort of dealt with when one has to was in India. That is really the issue, which will have to be sort of dealt with when one has to give a verdict on the taxability of the transaction.

give a verdict on the taxability of the transaction.

It is always self-evident, that if we buy shares of a company, in effect It is always self-evident, that if we buy shares of a company, in effect the shares are valued based on the underlying asset that is contained in the company - so that the shares are valued based on the underlying asset that is contained in the company - so that is self evident. For example, let us say today the Suzuki company was sold to Toyota

is self evident. For example, let us say today the Suzuki company was sold to Toyota

overseas. Is there an argument to say that the sale consideration that was paid-obviously what overseas. Is there an argument to say that the sale consideration that was paid-obviously what Suzuki will be paid by Toyota; it will include the value of the business in India, it will

Suzuki will be paid by Toyota; it will include the value of the business in India, it will

include the value of the business everywhere the Suzuki operates - so is there going to be an include the value of the business everywhere the Suzuki operates - so is there going to be an

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argument now that consideration should be split and to the extent the consideration relates to argument now that consideration should be split and to the extent the consideration relates to

Suzuki‘s Indian business that is tax

Suzuki‘s Indian business that is taxable in India. So I think we have got a huge broader issueable in India. So I think we have got a huge broader issue that we are dealing with here and therefore I do not think these arguments about value being that we are dealing with here and therefore I do not think these arguments about value being the underlying value are anything significant. These are self evident in any transaction where the underlying value are anything significant. These are self evident in any transaction where you buy shares of a company that has assets. So I think that there is a huge overall

you buy shares of a company that has assets. So I think that there is a huge overall perspective here.

perspective here.

The two other aspects that I did want to touch upon because that The two other aspects that I did want to touch upon because that might be one bizarre outcome -Let us say that the Bombay High Court holds that there may might be one bizarre outcome -Let us say that the Bombay High Court holds that there may be an argument that the capital asset is actually situated in India but they hold that the

be an argument that the capital asset is actually situated in India but they hold that the

provisions of Section 195, that is the obligation to withhold tax being a procedural obligation provisions of Section 195, that is the obligation to withhold tax being a procedural obligation does not apply amongst to non-residents. I am not certain but I think that there could be does not apply amongst to non-residents. I am not certain but I think that there could be another argument where the Department may say that the Vodafone paying entity becomes another argument where the Department may say that the Vodafone paying entity becomes what is called representative assessee of Hutchison. It is a very technical issue; normally a what is called representative assessee of Hutchison. It is a very technical issue; normally a representative assessee can only be a person in India. But if a foreign entity buys a capital representative assessee can only be a person in India. But if a foreign entity buys a capital asset from another foreign entity, which is situated in India, then it becomes a representative asset from another foreign entity, which is situated in India, then it becomes a representative assessee, in which case it becomes primarily liable for the tax liability not for withholding assessee, in which case it becomes primarily liable for the tax liability not for withholding tax.

tax.

So that is not the issue before the court. But if the court came up with So that is not the issue before the court. But if the court came up with some distinction of this kind that we do not believe Section 195 applies because of

some distinction of this kind that we do not believe Section 195 applies because of

extraterritoriality then that does not necessarily mean that the avenues for the tax department extraterritoriality then that does not necessarily mean that the avenues for the tax department are shut out. It depends a bit on what the court holds when it deals with the taxability at least are shut out. It depends a bit on what the court holds when it deals with the taxability at least in a prima facie level.

in a prima facie level.

In so far as the arguments mentioned, I am not sure it was taken up-it In so far as the arguments mentioned, I am not sure it was taken up-it came up at some stage. One of the things that is important to consider is that we have a came up at some stage. One of the things that is important to consider is that we have a decision of the Supreme Court in the case of Mauritius companies - the famous decision of decision of the Supreme Court in the case of Mauritius companies - the famous decision of Azadi Bachao-which basically said that if you have a Mauritian special purpose entity with Azadi Bachao-which basically said that if you have a Mauritian special purpose entity with

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no substance but to hold shares, you cannot pierce its corporate veil and go upward because no substance but to hold shares, you cannot pierce its corporate veil and go upward because the tax residency certificate protects the substance of the Mauritian entity. So in other words, the tax residency certificate protects the substance of the Mauritian entity. So in other words, you cannot pierce the corporate veil upwards.

you cannot pierce the corporate veil upwards.

Now what we are doing is piercing the corporate veil backwards. We are Now what we are doing is piercing the corporate veil backwards. We are saying the Mauritius company had it sold the shares, it would not have been taxable and you saying the Mauritius company had it sold the shares, it would not have been taxable and you could not look beyond the Mauritius company to see who actually made the money because could not look beyond the Mauritius company to see who actually made the money because ultimately the money from the Mauritius company went to the beneficial owner who was a ultimately the money from the Mauritius company went to the beneficial owner who was a resident in a non-treaty jurisdiction. But the argument put on its head is you could not pierce resident in a non-treaty jurisdiction. But the argument put on its head is you could not pierce the corporate veil upwards. But when the shareholder of the Mauritian entity sold the shares, the corporate veil upwards. But when the shareholder of the Mauritian entity sold the shares, you could pierce the corporate veil downwards, which I think is a bit bizarre because if you you could pierce the corporate veil downwards, which I think is a bit bizarre because if you cannot pierce the corporate veil of the Mauritian entity; because that is what the Supreme cannot pierce the corporate veil of the Mauritian entity; because that is what the Supreme Court said in Azadi Bachao, then I am not terribly sure on how you can pierce the corporate Court said in Azadi Bachao, then I am not terribly sure on how you can pierce the corporate veil downwards.

veil downwards.

The department has itself signaled that other M&A deals will be looked The department has itself signaled that other M&A deals will be looked at by them and I believe they have issued notices to other companies on similar lines, I at by them and I believe they have issued notices to other companies on similar lines, I believe they are also pursuing cases of participatory notes.

believe they are also pursuing cases of participatory notes.

But leaving that aside, everyone has talked about M&A deals. But if the But leaving that aside, everyone has talked about M&A deals. But if the logic of the Department were to prevail, then every transaction on the New York Stock

logic of the Department were to prevail, then every transaction on the New York Stock

Exchange in a US company which has shares in the Indian company would have some part of Exchange in a US company which has shares in the Indian company would have some part of

it‘s value derived from the Indian assets. Then the

it‘s value derived from the Indian assets. Then they would sayy would say that the New York buyer bythat the New York buyer by

their logic under Section 195 should be deducting tax on that proportion. I think it‘s their logic under Section 195 should be deducting tax on that proportion. I think it‘s

completely laughable but it necessarily follows from the stand the department has taken. So completely laughable but it necessarily follows from the stand the department has taken. So either their stand is right in which case it should work the way I am saying, or their stand is either their stand is right in which case it should work the way I am saying, or their stand is wrong and I do believe their stand is wrong.

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Second and the

Second and the surprising part surprising part is the macro is the macro perspective, other deals overperspective, other deals over the past -overseas deals or an overseas company, who are owning assets in India, is not new the past -overseas deals or an overseas company, who are owning assets in India, is not new to us. We had the Sterling Tea Companies for example; we had Calcutta Tramways which to us. We had the Sterling Tea Companies for example; we had Calcutta Tramways which was a company whose only asset was by its name suggested the tramways in Calcutta. If you was a company whose only asset was by its name suggested the tramways in Calcutta. If you had a sale of those shares on the stock market in London, who never sought to tax that. There had a sale of those shares on the stock market in London, who never sought to tax that. There were many companies with those features in the past we had other sales like CEAT, Dunlop, were many companies with those features in the past we had other sales like CEAT, Dunlop,

Shaw Wallace, which happened overseas it has never been sought, to be taxed by the Shaw Wallace, which happened overseas it has never been sought, to be taxed by the department on the sales for public knowledge. So why did the department change its stand. department on the sales for public knowledge. So why did the department change its stand.

The issue really is that it will definitely open up a lot of issues for Indian The issue really is that it will definitely open up a lot of issues for Indian investors investing abroad if a similar transaction was sought to be taxed by the tax

investors investing abroad if a similar transaction was sought to be taxed by the tax authorities in other countries; we had a situation where in the context of some other authorities in other countries; we had a situation where in the context of some other

provision, particular position was taken by the tax authorities and some other country decided provision, particular position was taken by the tax authorities and some other country decided to tax the software companies abroad and that issue had to be resolved ultimately through to tax the software companies abroad and that issue had to be resolved ultimately through mutual bilateral talks and to bring an end to that. So I do agree that yes, if such a thing mutual bilateral talks and to bring an end to that. So I do agree that yes, if such a thing happens then we can have responding actions and there could be pressure from other happens then we can have responding actions and there could be pressure from other

countries also to do something similar. So one needs to be very careful when one deals with countries also to do something similar. So one needs to be very careful when one deals with such issues.

such issues.

Taxability apart, I don‘t want to get into that but I think this

Taxability apart, I don‘t want to get into that but I think this applying,applying,

withholding tax or tax deduction obligations in offshore transactions is going to have a huge withholding tax or tax deduction obligations in offshore transactions is going to have a huge element of uncertainty when you do transactions, two foreign companies sitting in New York element of uncertainty when you do transactions, two foreign companies sitting in New York are selling businesses or companies to each other and they are now going to have to wonder are selling businesses or companies to each other and they are now going to have to wonder how much tax they should withhold- should they apply to the Indian Tax Authorities. I think how much tax they should withhold- should they apply to the Indian Tax Authorities. I think it creates a great degree of uncertainty and even if the Tax Department wants to go after it creates a great degree of uncertainty and even if the Tax Department wants to go after taxability of these transactions, I think we need to divorce the procedural issue of tax taxability of these transactions, I think we need to divorce the procedural issue of tax

deduction at source from the arguments on whether or not the transaction is taxable and be a deduction at source from the arguments on whether or not the transaction is taxable and be a little more realistic and rational to bring in certainty to transactions rather than bring in an little more realistic and rational to bring in certainty to transactions rather than bring in an element of uncertainty here.

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Today we are doing transactions offshore, what do we tell people? You are Today we are doing transactions offshore, what do we tell people? You are buying shares of an offshore company but by the way you may have withholding tax

buying shares of an offshore company but by the way you may have withholding tax obligations; should you apply to the Tax Department to deduct taxes? So it becomes very obligations; should you apply to the Tax Department to deduct taxes? So it becomes very complicated.

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Chapter 4

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RESEARCH METHODOLGY

The methodology used

The methodology used qualitative,qualitative, quantitative,quantitative, andand mixed-methods.mixed-methods. Qualitative methods include the

Qualitative methods include the case study,case study, phenomenology,phenomenology, grounded theory,grounded theory, andand ethnography,

ethnography, among others. Quantitative methods include,among others. Quantitative methods include, Ratio analysis,Ratio analysis, observationalobservational studies,

studies,among others.among others.

Types of Research

The research study under consideration is exploratory type. The research study under consideration is exploratory type. Basically there are two broad kinds of researches

Basically there are two broad kinds of researches



 Exploratory Exploratory Research Research : : This This seeks seeks to to discover discover new new relationships.relationships.



 Conclusive Conclusive Research Research : : It It is is designed designed to to help help executive executive choose choose the the variousvarious Course of action.

Course of action.

As research design applicable to exploratory studies are different from objectives As research design applicable to exploratory studies are different from objectives firmly in mind while designing the research. Which searching for hypothesis, exploratory firmly in mind while designing the research. Which searching for hypothesis, exploratory designs are appropriate; when hypothesis have been established and are to be listed, designs are appropriate; when hypothesis have been established and are to be listed, conclusive designs are needed. It should be noted however, that the research process tends to conclusive designs are needed. It should be noted however, that the research process tends to become circular over a period of time. Exploratory research may define hypothesis, which are become circular over a period of time. Exploratory research may define hypothesis, which are then tested by conclusive research; but a by product of the conclusive research may be a then tested by conclusive research; but a by product of the conclusive research may be a suggestion of a new opportunity or a new difficulty.

suggestion of a new opportunity or a new difficulty.

Other characteristics of exploratory research are flexibility and ingenuity, which characterize Other characteristics of exploratory research are flexibility and ingenuity, which characterize the investigation. As we proceed with the investigating it must be on the alert to recognize the investigation. As we proceed with the investigating it must be on the alert to recognize new ideas, as it can then swing the research in the new direction until they have exhausted it new ideas, as it can then swing the research in the new direction until they have exhausted it or have found a better idea. Thus they may be constantly changing the focus of invest as new or have found a better idea. Thus they may be constantly changing the focus of invest as new possibilities come to attention.

possibilities come to attention.

It should be added here that formal design in the researcher is the key factor. It should be added here that formal design in the researcher is the key factor.



 Study of secondary sources of information.Study of secondary sources of information.

The reason for selecting this mode of resea

The reason for selecting this mode of research for this type is that irch for this type is that it‘s a probt‘s a prob

ably quickest and most economical way for research to find possible hypothesis and to take ably quickest and most economical way for research to find possible hypothesis and to take advantage of the work of to others and utilize their own earlier efforts. Most large companies advantage of the work of to others and utilize their own earlier efforts. Most large companies