 "Did Voda play it fair with Essar?")
[caption id=“attachment_2367” align=“alignleft” width=“380” caption=“Vodafone bought out Essar’s stake for $5 billion. Reuters”]
[/caption]
Don’t you get that crazy aha feeling when it all checks out? I just had such a feeling today. Last evening Vodafone said that Essar had exited the company and Vodafone paid $5 billion for that privilege. That set me thinking- Did Vodafone pay too much or too little? When in doubt do the math I told myself.
I went through Vodafone’s latest results, took their first half FY2011 numbers, annualized them and converted them into dollars. That told me that Vodafone India had a revenue of $6.016 billion and a profit of $1.561 billion. Now you can use many valuation techniques but I thought let me use a simple and elegant method (even though I say it myself!) : Price-to-Sales . Specifically, Price-to-Sales of Bharti Airtel for the last year. Thomson Reuters says it is 2.53. Using that number gives Vodafone India’s value as $15.22 billion and to buy 33% of that Vodafone would need to pay $5 billion.
This is exactly the sum they paid to Essar. Neat, huh! Anybody got alternative answers?
Shishir Prasad is a Deputy Editor at Forbes India. He has written on technology, corporate strategy, private equity and entrepreneurship, perhaps in the hope of finding a grand unified pattern that connects all of them. Sometimes he has been successful at spotting a semblance of a pattern. At other times he has simply filed a story. When he doesn’t have a deadline to meet, he loves to read anything he can lay his hands on and play squash till his feet hurt. Here, he blogs mostly on private equity and the business of technology.