Vodafone wins Indian prize

12 Feb 2007

Vodafone has won the fiercely contested battle for control of Hutchison Essar, in a deal valuing India’s fourth largest mobile operator at almost USD18.8 billion. Arun Sarin, Vodafone’s chief executive, said ‘We have concluded this transaction within our stated financial investment criteria and we are confident that this will prove to be an excellent investment for our shareholders. Hutch Essar is an impressive, well-run company that will fit well within the Vodafone group.’ Under the terms of the deal Vodafone will pay USD11.1 billion in cash for the 67% of Hutchison Essar owned by Hutchison Whampoa, the Hong Kong-based conglomerate, through its subsidiary Hutchison Telecommunications International; it will also assume USD2 billion of net debt. Vodafone will directly own a 52% stake, while local partners will hold 15% on its behalf so that it meets Indian regulatory rules, which state that foreign companies can only own up to 74% of telecom service providers.

As part of the deal Vodafone has signed a network sharing agreement with Bharti Airtel, India’s largest mobile operator, which could provide big savings and therefore help the group meet its financial criteria on acquisitions. At the same time it has granted Bharti an option to buy out its 5.6% direct stake in Bharti for USD1.6 billion, double the acquisition price. If the option is not exercised, Vodafone could sell the stake to a third party, while retaining a 4.4% indirect stake.

Vodafone’s bid surpassed offers by Reliance Communications, India’s second-largest mobile operator; Essar, an Indian conglomerate that already owns 33% of Hutchison Essar; and the Hinduja group, another Indian conglomerate. Essar said Vodafone had invited it to be its partner in Hutchison Essar, although it is thought possible that Essar could decide to sell its 33% stake, rather than become Vodafone’s partner.