[lbo-talk] Is Verizon Now Eyeing Hutchison Essar?

Sujeet Bhatt sujeet.bhatt at gmail.com
Thu Jan 4 11:28:30 PST 2007


http://www.businessweek.com/globalbiz/content/jan2007/gb20070104_434131.htm?chan=top+news_top+news+index_global+business

Business Week

Is Verizon Now Eyeing Hutchison Essar? If the U.S. telco spends big on the Indian mobile carrier, it could mean another bonanza for Hong Kong dealmaker and Hutchison honcho Li Ka-shing

by Nandini Lakshman and Frederik Balfour

The mad mating dance for a controlling 67% stake of Indian mobile carrier Hutchison Essar continues to heat up. And the latest suitor for the unit—a joint venture between Indian conglomerate Essar and Hutchison Telecom International (HTX), controlled by Hong Kong billionaire Li Ka-shing—may be Verizon Communications (VZ).

The second biggest U.S. telephone company, Verizon operates a joint venture in the U.S. with the British Vodafone Group (VOD) and wants to expand into India's high-speed telecom market, one of the fastest growing in the world, according to India media reports on Jan. 4. A Verizon spokesman in the U.S. declined to comment on the issue.

Other potential bidders include Vodafone, a group led by India's second biggest cell-phone operator Reliance Communications (RLCMY), Malaysian cell-phone operator Maxis together with U.S. private equity player Texas Pacific Group, and the Essar Group, which would like to buy the 67% stake it doesn't own in the company from Hong Kong-based Hutchison Telecom. A Verizon offer may be a long shot. According to a source familiar with the situation, the agreement between Verizon and Vodafone calls for Vodafone not to compete against Verizon in the U.S. and, in exchange, for Verizon not to compete against Vodafone in international markets. Will Li Ka-shing Cash In?

Still, the broad interest in Hutchison Essar is understandable given India's white-hot mobile phone market. The country's current mobile subscriber base is 135 million and is expected to reach 450 million by 2010. Every year, 17 million to 18 million new users enter the market, and foreign players in particular want a piece of that action. "Multinationals will get a big toehold in the fast-growing Indian telecom market," says Priyanko Panja, vice-president at Mumbai-based Edelweiss Capital.

And the sale could result in yet another king-sized cash haul for Li, one of Asia's most fabled dealmakers. He controls Hutchison Whampoa (HUWHY), a sprawling business empire with stakes in everything from ports and property to supermarkets and Internet portals. Back in June, Hutchison Telecom increased its stake in Hutchison Essar by 5.11% for $450 million, valuing the company at just $8.8 billion.

However the betting is that Li will pull in $20 billion-plus for the 67% stake in Hutchison Essar, given the dynamic growth prospects in India. If so, this would certainly be one of Li's biggest trophy deals (see BusinessWeek.com, 12/27/07, "Is Li Ka-shing Making His Move in India?"). A Fine Sense of Timing

Li has often displayed an uncanny sense of when to cash in his chips. In 1999 he pocketed nearly $20 billion in profits when Hutchison sold British cellular carrier Orange to Mannesmann at the height of the tech boom. Later that year Hutchison got $5.9 billion for its share of U.S. cellular carrier VoiceStream Wireless—which it had bought for just $1.3 billion.

He also picked up a majority stake in Global Crossing (GLBC) for just $250 million for assets valued at $22.4 billion when the company filed for bankruptcy in 2002. In the first half of this year, Hutchison booked a $3.14 billion profit on the sale of a 20% stake in its port unit, the world's largest, to Singapore PSA International.

Li has built a personal fortune worth more than $20 billion since he immigrated from China decades ago. He is venerated by hundreds of thousands of Hong Kongers, who call the reclusive tycoon chiu yan (Superman). His image may go up another notch if he makes a profitable exit from Hutchison Essar.

Lakshman covers India business for BusinessWeek. Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.

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