Hutchison Essar - Vodafone's view

Vodafone, the UK mobile group, has predicted that the race to buy India’s Hutchison Essar could drag on until March. The deadline for offers closes today.

The company made the prediction after reporting largely upbeat figures for the quarter ended December 31, 2006, and revealing that customer numbers had topped the 200 million mark.
New customers during the quarter reached 8.7 million, beating forecasts of between 5.6 million and 7.6 million new users. At the end of the quarter, Vodafone’s customers totalled 198.6 million and this month the figure has exceeded 200 million.
Bidders are understood to have until today to table an offer for Hutchison Essar, India's fourth-largest mobile operator, with a decision expected by the end of February. However, Vodafone’s chief executive, Arun Sarin, said this morning that the deal could take until March to conclude.
Earlier this month, the Hinduja Group made a $17 billion (£8.7 billion) non-binding offer for the company. Also in the running are Essar, which holds a 33 per stake in the target company, and India’s Reliance.
Vodafone's organic revenue grew by 6.1 per cent in the quarter and by the same percentage over nine months. However, the group said Europe was "challenging". Sales there were up marginally at 0.9 per cent, hit by Germany, where regulatory changes to pre-paid disconnection policies were introduced.
Emerging market operations performed well and overall revenue increased by 14.4 per cent.
Vodafone Group Plc vowed not to pay "over the top" in the multi-billion-pound battle for India's Hutchison Essar on Wednesday, as the British mobile phone giant said it had crossed the 200-million customer mark.
Chief Executive Arun Sarin said final bids in the auction to win control of India's fourth biggest mobile operator were still "weeks away" and that the probability of Vodafone's success remained "very hard to call".
Europe's most valuable telecoms company is one of at least four bidders eyeing a 67-percent stake put up for sale by parent Hong Kong's Hutchison International Ltd, and its rising valuation had led to some concerns the acquisitive firm could overpay.
"(This asset is) very strategically aligned with what we have been saying to shareholders. Equally, we are going to be financially disciplined. We will participate fully, but we are not going to go over the top," Sarin told reporters.
The bidding for Hutch Essar, ultimately controlled by Hong Kong-based ports-to-telecoms conglomerate Hutchison Whampoa kicked off in late December with valuations of around $13-15 billion, but has shot up to as much as $20 billion.
Vodafone, which is battling India's Reliance Communication and the Essar and Hinduja groups in the auction, is increasingly dependent on growth in emerging markets to compensate for slowing growth in western Europe.
Vodafone, which has a 10 percent stake in India's biggest mobile operator Bharti Airtel, has long been keen to increase its exposure to India, the world's fastest growing mobile market that is seeing around 6 million new subscribers each month and has plenty of headroom to grow.
The world's biggest mobile operator outside of China said its customer base had crossed the 200 million customer mark, as it beat forecasts for new sign-ups with 8.7 million customers taking up its services in the fiscal third-quarter.
"It took us 15 years to get our first 100 million customers," he told reporters. "It took us 5 years to get the next 100 million. There is good momentum in the business."
Vodafone said its mobile revenue rose 6.1 percent during the key Christmas quarter, with growth in emerging markets such as eastern Europe, the Middle East and Africa far outpacing core Western Europe markets.
Vodafone was expected to add a net 7.5 million customers in the quarter, according to the average forecast of 12 analysts polled by Reuters. The average forecast for revenue growth was 6.2 percent.
"Very solid performance which adds confidence to investment case," said Dresdner Kleinwort analyst Robert Grindle.
Vodafone shares were 1.7 percent up at 149-1/2 pence by 0845 GMT. The shares have gained 28 percent in the past five months as they recover from a turbulent 2006, during which Sarin survived a rebellion from a minority of shareholders upset at his efforts to tackle slowing growth in core European markets.
The stock is traded at 13.6 times forecast earnings, compared with 14.1 for the DJ Stoxx European telecoms index.
Vodafone also reiterated its full year forecasts, saying it expected mobile revenue growth for the year to be within its previously indicated range of 5 to 6.5 percent and mobile EBITDA margin one percentage point lower.
Earlier this week, rival Deutsche Telekom sent shivers through the European telecoms sector with a profit warning -- its second in six months -- blaming fierce competition in the German market.
"Vodafone outperformed T-Mobile in Germany and produced decent improvements in revenue growth in the UK and Italy," Goldman Sachs analysts said in a research note.

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