The Essar Group, 33 per cent owner of Hutchison Essar Limited (HEL), and UK-based Vodafone seem to have finally buried the hatchet. The two companies recently ironed out their differences and various management details and reached a partnership agreement.
The visit of Arun Sarin, CEO of Vodafone, to India put an end to the tussle over the right of first refusal (RoFR) and other issues that followed Vodafone’s highprofile acquisition of Hutchison Telecom International Limited (HTIL)’s 67 per cent stake in HEL for $11.1 billion. With the new understanding, Vodafone and Essar move on to the next phase ?? working together towards the growth of HEL.
As Sarin notes, “Essar has played a key role in transforming HEL into a leading Indian mobile operator. We look forward to leveraging this experience and working with our partner as the company enters its next phase of growth in the attractive Indian telecommunications market. We will be bringing the relevant range of Vodafone products and services to the Indian consumer.
It has been decided that the new company will be called Vodafone Essar in due course ?? eight to 10 months ?? and it will market its products and services under the Vodafone brand name. While operational control will be in the hands of the UK firm, Essar will have seats on the board and rights consistent with its shareholding.
Essar’s vice-chairman, Ravi Ruia, is to be appointed chairman of Vodafone Essar while Sarin will be the vice-chairman. The board will consist of six directors from Vodafone and four from the Essar Group.There is to be no change in the management of the company, which will be led by CEO Asim Ghosh.
Under the new terms and conditions, the partners have worked out a comprehensive clause for the right of first refusal for any stake sale in the future.Essar has the right to sell its entire stake to Vodafone for $5 billion, or a part of its stake at an independently valued price, in three years’ time.
Coinciding with the Vodafone-Essar partnership agreement, HTIL too reached a settlement with the Essar Group. Under this, Essar will take all necessary steps to ensure completion of the transaction and will refrain from initiating any action that may inhibit or delay the transaction. In addition, Essar would give HTIL certain indemnities and waive any rights it may have in relation to the transaction during the second quarter of 2007.
On its part, HTIL, according to its statement, has agreed to pay Essar $373.5 million at the closing of the transaction with Vodafone and a further $41.5 million as interest by the second anniversary of the deal.
With most of the issues addressed, Vodafone and Essar are now keen to tap the substantial growth opportunities in the Indian mobile market. Vodafone, a leading international mobile operator with an extensive range of products and services, many of which are not currently available in India, and Essar with its grasp of the Indian mobile industry hope to complement their strengths to broaden Vodafone Essar’s service offerings and increase their subscriber base. Vodafone has already announced its intention of investing $2 billion towards increasing rural telephony.
Some hurdles are expected though.The Foreign Investment Promotion Board (FIPB) is yet to give its approval, which is necessary to complete the deal. It has still to ascertain whether the joint venture between Vodafone and Essar meets the FDI guidelines. It can consider Vodafone’s application only once the government completes its examination of HEL’s shareholding structure. This is because the finance ministry has sought the comments of the RBI and the Department of Telecommunications (DoT) on whether the 12.26 per cent shareholding of Ghosh and Max India chairman Analjit Singh in HEL amounts to violations of the Foreign Exchange Management Act and the FDI norms. While DoT has given its approval on the deal, the RBI has apparently asked for additional time to submit its report.Last reported, representatives of Vodafone, Bharti and Essar had been called by the FIPB for “informal” discussions to ensure maximum transparency.
