Vodafone buyout of Essar still not a done deal

British telecom operator Vodafone's $5-billion offer to buy out the Essar Group's holding in their joint Indian venture Vodafone-Essar, which looked almost like a done deal earlier this week, may still have some way to go. According to a report in The Economic Times citing unnamed sources, Essar is seeking $600-$700 million more for its 33-per cent stake in the venture.

The report, posted on Friday and reiterated on its website today, said Essar could invoke a Reserve Bank of India resolution that says Indian shares in privately held firms should be valued under the discounted cash flow method. Under this method, Essar's 11-per cent stake would be worth $1.8 to $1.9 billion, compared with the purchase option that puts it at $1.2 billion.

Essar however seemed to rebut this report, saying on Friday that the group is committed to its contractual obligations and will honour the call option for a 10.97-per cent stake in Vodafone Essar Ltd. It also expects Vodafone to fulfill obligations under the pact.

The company is not looking for more money for exiting the mobile phone joint venture, and has already applied to the RBI seeking permission to transfer these shares for $1.2 billion in terms of the call option exercised by Vodafone, CNBC-TV18 reported citing a source with direct knowledge of the matter.

Until this transaction is concluded which is expected by the end of November, Essar will continue to be a shareholder and retains its rights under its agreement with Vodafone Essar, the report added.

Vodafone announced a deal last month to pay a predetermined price of $5 billion to buy Essar out of Vodafone Essar to give it direct ownership of 75 per cent in India's third-biggest operator and bring an end to their fractious relationship.