Vodafone may push for a new agreement, including crucial changes in shareholder rights with the Essar group, if the latter decides to only partly sell its stake in the joint venture Vodafone Essar, according to news reports. Essar has a put option to sell its entire 33 per cent stake for $5 billion, or to sell a part of it at a discovered price, to Vodafone which can be exercised by May, 2011.
The current agreement gives the Essar Group the same boardroom rights, including a veto power, as long as they hold a minimum 10 per cent stake in Vodafone Essar. This right extends to expenditures over $50 million and right of first refusal over its partner’s stake, which is mutual.
It is believed that Vodafone wants a new agreement, in which the Essar Group’s rights could be diluted, irrespective of how much stake the latter continues to hold. While Vodafone would prefer to buy the Essar Group?s stake completely later this year, its local partner is most likely to opt for a partial sale keeping its shareholding well above the requisite level to keep its rights.
The Essar Group is expected to oppose any move to renegotiate the existing agreement, unless both players agree to an amicable settlement. Vodafone believes the terms must be renegotiated, if the Essar Group wants to extend the association, as the Indian partner holds significant boardroom leverage right now. It does not want to be frustrated by the local partner who would wield the same powers even after unlocking significant value in a part stake sale.
