mobiles cost more than Steel

Mobiles cost more than steel

Cellular firms may be doling out connections virtually for free these days while steel prices are ruling above $500 a tonne, but in the parlance of M&A street, acquiring one mobile user is far more expensive than buying a tonne of steel. To be precise, it costs close to $1,000 to acquire one cellular subscriber against $600 for one tonne of steel manufacturing capacity, going by the bids quoted for mobile operator Hutch-Essar and steel maker Corus. For the purpose of analysis, the minimum price of $14 billion that Hong Kong-based Hutchison Telecom has quoted for its 67% stake in Hutch-Essar would require any buyer to shell out at least $950 for each of the company’s 22 million subscribers. In contrast, the winning bidder for corus — between Tata Steel and CSN — would be paying a price of less than $600 for each tonne of steel produced in a year by the Anglo-Dutch steel maker, which has an annual output of about 19 MT. The difference could be greater if reports that suitors for Hutch-Essar are willing to pay a much higher price than $15 billion used in calculations here are to be believed. On the other hand, the two bidders for Corus are moving cautiously before sweetening their offers further. Notwithstanding the high price the suitors in both the cases are willing to pay quite high, the prospective suitors can take solace in the fact that previous deals in respective sectors have been even more expensive. India-born steel tycoon LN Mittal, who won a long-drawn battle to acquire European giant Arcelor last year, ended up paying over $35 billion, much more than its own size. Still, the deal resulted in a price of about $1.3 billion for per million tonne of steel produced by Arcelor, which has an annual production of about 45 million tonnes. Compared to Arcelor-Mittal deal, Corus could be a value for money with a price of less than $600 million per million tonne of steel. Even in telecom sector, when US cellular giant Cingular wireless acquired AT&T wireless for $41 billion in 2004, it acquired the target company’s nearly 22 million subscribers at a price of close to $1,900 each. Interestingly, Vodafone, which is one of the suitors for Hutch-Essar, was one of the interested parties in acquiring AT&T wireless. Analysts believe that Vodafone’s current ambition, which also comes at a lower price, is a much better bet than AT&T as India is a fastgrowing market and US mobile market has almost saturated. Vodafone had also paid a price of about $1,000 per subscriber when it acquired a 10% stake in Bharti Airtel for about $1.5 billion in 2005, an industry study shows. Previously, global private equity fund house Warburg Pincus had also paid a price of close to $1,000 when they acquired a 9.3% stake in Bharti for $873 million. Despite the high price, analysts believe, buyers are lining up for Hutch-Essar, which boasts of an average revenue per user of Rs 373, higher than market leader Bharti Airtel’s arpu of Rs 348. Besides, Hutch-Essar has the highest revenue per minute and best minutes of usage per user per month, beating rivals Bharti and Reliance Communications, analysts added.