Essar threatens legal action over Vodafone-Bharti alliance

Rex Mathew
14 February 2007

The Essar Group, which holds a 33 per cent stake in Hutchison Essar, has reportedly threatened to take legal action against Vodafone for the unilateral decision by the latter to form an alliance with Bharti Airtel for infrastructure sharing.

Essar is particularly miffed that Vodafone is treating the whole matter as a done deal, even when only an agreement has been reached between Vodafone and Hutchison Telecom (HTIL) for the 67 per cent stake sale in Hutch-Essar.

The Essar Group is still waiting for the formal communication from HTIL about its agreement with Vodafone. The group had stated earlier that it is studying the offer from Vodafone to buy out its 33 per cent stake in Hutch-Essar and may take five or six weeks before arriving at a decision.

Most analysts and industry observers believe that this is another pressure tactic by the Ruia brothers of Essar to push for an even better price for their company's stake in the Hutch-Essar joint venture. Through these pressure tactics, the Essar Group may be trying to force Vodafone to hike its offer, which now stands at the same price offered to HTIL.

Vodafone may prefer a more accommodating local partner than Essar and would overtly prefer to buy it out, despite Vodafone CEO Arun Sarin's publicised invitation to the Essar Group to remain as the minority partner of the company. 

Essar's acquisition of BPL Mobile's operations in the Mumbai circle is another trump card with the Ruia brothers. After Essar acquired BPL Mobile and merged it with Hutch, the Mumbai circle was left out of the Hutch umbrella, because of the Essar Group's differences with HTIL. Essar Telecom continues to operate the Mumbai circle on its own and would try to exit only if it finally decides to sell out its 33 per cent stake in Hutch-Essar.