Verizon and Hindujas may join race for Hutch-Essar

Rex Mathew
04 January 2007

Even as the frontrunners to acquire Hutchison's stake in Hutch-Essar — Vodafone, Essar and Reliance Communications — work out their strategies, there is speculation that more suitors are getting ready to enter the fray. This may encourage Hutchison to wait a bit longer before closing the deal, to extract the best possible price.

The most prominent among the new names being talked about in industry circles is that of US telecom company Verizon. The company, one of the larger telecom companies in the US, refused to comment on these reports. Verizon has a total subscriber base of 57 million and had reported revenues of $75 billion for 2005. Its wireless division posted revenues of $32 billion for 2005 and had a subscriber base of 56.75 million as of September 2006. The company has a market value of close to $110 billion and may not find it difficult to raise finances to fund a possible deal, though it has considerable debt on its books.

Incidentally, Vodafone holds a 45-per cent stake in Verizon's mobile or wireless business. Vodafone has been trying very hard to establish a foothold in the US, but has been unsuccessful so far. There has been considerable speculation over the last couple of years that Vodafone would sell its stake in Verizon Wireless to fund the acquisition of a smaller US mobile operator.

Hinduja group, which held a minority stake in Hutch-Essar till last year through group company Hinduja TMT, is also rumoured to be keen to place a bid for Hutch-Essar. The group has reportedly indicated its interest to Hutchison and is expecting an invitation from the latter to place a bid. Given its international spread and connections, the Hinduja group won't find it difficult to raise sufficient funding. The group had sold off its minority stake in Hutch-Essar for Rs2,000 crore last year.

Fresh reports indicate that the Essar group has valued Hutch-Essar at $20 billion and is willing to pay up to $14 billion for Hutchison's stake. The group has reportedly placed an initial bid of $11 billion for Hutchison's stake and is waiting for other bidders to make their moves before hiking its offer. The promoters of the group are reportedly in Hong Kong to hold discussions with Hutchison over the dispute regarding Essar's right of first refusal.

While Essar maintains that it has a blanket right, Hutchison argues that Essar's right would not be applicable in case an overseas company acquires Hutchison's stake.