Vodafone announces interest in Hutch Essar

Rex Mathew
22 December 2006

Vodafone, the largest telecom company globally in revenue terms, today formally announced its interest in acquiring a controlling interest in Hutchison Essar Limited, India's third largest GSM mobile telecom operator. The Vodafone board had met yesterday in London to consider a bid and has reportedly authorised CEO Arun Sarin to pursue the deal.

The announcement puts to rest many days of speculation as to whether Vodafone would join the race to acquire Hong Kong-based Hutchison's majority stake in Hutch Essar. Reliance Communications, the largest Indian CDMA mobile operator, is another leading contender for acquiring Hutch Essar. Malaysian telecom company Maxis, which owns 74 per cent of Indian telecom company Aircel, and Egypt's Orascom are also rumoured to be preparing bids of their own.

Analysts and industry watchers expect Vodafone to make an all cash bid for a majority stake. As current regulations permit foreign companies to hold only up to 74 per cent in Indian telecom companies, Vodafone would have to rope in a local partner.

There are reports that Vodafone has initiated discussions with the Essar group, which currently holds 33 per cent of Hutch Essar, for such an alliance. Essar also holds the right of first refusal in case Hutchison decides to offload its stake.

Meanwhile, Bharti Airtel - the largest GSM mobile operator in the country - has announced that Vodafone has intimated the company about its intention to bid for Hutch Essar. Vodafone currently holds nearly 10 per cent of Bharti Airtel and there is a non-compete agreement valid for 1 year from the date of break-up between the companies. For Vodafone to proceed with the Hutch Essar bid, Bharti would have to waive the non-compete clause.

Hutchison group is expected to announce its intention to exit the Indian business any time now. According to some reports, Hutchison is not happy with the informal bids indicated by Vodafone and Reliance Communications. While these two potential bidders have reportedly indicated an enterprise value of around $17 billion, Hutchison believes Hutch Essar is much more valuable because of its premium positioning, brand image and higher revenues per user.