London Briefing Fiona WalshSo far, so good: shares in Vodafone crept to a 15-month peak earlier this week as the group emerged victorious in the fierce battle for control of Hutchison Essar, India's fourth-largest mobile phone firm.
The all-cash bid values Hutchison Essar, known as Hutch, at almost $19 billion, and is the largest-ever foreign investment in India. To clinch the deal, Vodafone fought off rival bids from India's second-largest mobile operator, Reliance Communications, and also from the Indian Hinduja conglomerate.
That was the easy bit. Now Vodafone chief executive Arun Sarin must convince doubters in the City of London that the deal can be made to pay. Although initial reaction was good, pushing Vodafone shares higher, that was partly on relief the auction price had not climbed above the $20 billion mark.
The strategy of taking a major stake in the emerging Indian market is not in question - only the price that Vodafone has paid to secure it. Its track record on over-paying for acquisitions is not a good one: Vodafone set the record for the biggest hostile takeover in corporate history when it bought Germany's Mannesmann in 2000 for £112 billion.
The deal, clinched at the height of the dotcom boom, proved hugely expensive and massive write-downs on the Mannesmann business last year saw Vodafone claim a new corporate record - Britain's biggest-ever loss of £14.9 billion.
It is the huge growth prospects of the Indian market that have encouraged Sarin, who faced an investor revolt last year, to risk further shareholder wrath with the Hutch deal. While mobile phone penetration in Europe is now running at more than 100 per cent (in other words, there are more mobile phones than there are people) just 13 per cent of India's 1.1 billion population has a mobile phone.
The market is growing rapidly, however. Handset numbers more than doubled to 142 million last year - a growth rate which outstripped even that of China. This year, the figure is forecast to rise by another 50 per cent, with more than six million new subscribers being added every month.
By 2010, it is estimated there will be more than 500 million mobile users in India. As well as targeting the well-off middle classes in Mumbai and Bangalore, mobile phone operators are tailoring their handsets to the vast rural population of India. For example, Motorola recently launched a low-cost icon-based handset to appeal to customers who cannot read. The phones are also made with long battery life and designed to be readable even in the harshest sunlight.
As the country's fourth-largest mobile phone operator, Hutch has just over 23 million subscribers and, backed by Vodafone, it looks set for a rapid increase in its share of the booming market.
Meanwhile, back in Britain and the rest of the saturated Europe market, operators such as Vodafone are increasingly looking to new models and add-ons to achieve growth. As the Hutch deal was announced in India, back home Vodafone was unveiling the latest in a series of moves designed to stretch revenues in its more mature markets.
It has linked up with the search engine Google to develop a location-based version of Google Maps for downloading to mobile phones. It will offer maps and local listings, as well as search and navigation tools.
It is also linking up with Citigroup on a mobile-based international money transfer service, which will allow money to be transferred internationally from person to person using mobile technology.
The new services may well prove popular with mobile users lost in an unfamiliar town or migrant workers wanting to send money home. But Vodafone and its rivals are well aware that real growth in the future will come from signing up new subscribers in India and other emerging markets, rather than squeezing cash from extra services to European customers.
Furse victory
Like Arun Sarin, London Stock Exchange (LSE) chief executive Clara Furse has just clinched a notable victory in the M&A field. Only, in her case, she successfully defended her company against yet another takeover move.
By the final deadline last weekend, holders of only a handful of LSE shares had accepted terms of the hostile £2.7 billion bid launched by the rival American exchange, Nasdaq.
This is the fourth time in two years that the LSE has managed to ward off a takeover attempt, insisting that all offers have undervalued its growth prospects.
Nasdaq made great play of the threatened competition from a group of investment banks which are planning to launch a rival trading platform, a move which has already seen the LSE cut its charges. But investors clearly believe their shares will be worth more with the LSE retaining its independence than the £12.43 terms offered by Nasdaq.
Like Sarin in the wake of his Indian deal, Furse will now have to live up to investors' expectations. Her task will not be made any easier by the continuing presence of failed-bidder Nasdaq on the LSE share register - the US exchange built up a 28.75 per cent shareholding in the group during the course of its pursuit and has said it is determined to retain its stake.
The LSE is expected to pursue link-ups with the Tokyo Stock Exchange and the Mumbai stock market, among others, and will also be rewarding investors for their loyalty with a £250 million share buyback programme.
If Furse's confidence in the LSE's growth prospects are well-founded, Nasdaq should be sitting on a good investment. If not, then the US exchange will be free to bid again in 12 months' time.
Fiona Walsh writes for the Guardian newspaper in London
