Forbes.com
Vodafone Wins Bid For Hutchison Essar Ruth David, 02.11.07, 5:00 PM ET
British telecom Vodafone Group has won a bidding war for Hutchison Essar in a deal that values the rapidly growing Indian telecom at $18.8 billion, including debt. Vodafone will be buying the controlling stake currently owned by Hutchison Telecommunications International for $11.1 billion.
Vodafone (nyse: VOD - news - people ) had bid against a number of groups, including Essar Group, which owns 33% of Hutchison Essar.
Vodafone CEO Arun Sarin said, "We have concluded this transaction within our stated financial investment criteria and are confident this will prove to be an excellent investment for our shareholders." The acquisition will be financed through debt and existing cash. Vodafone will assume a net debt of about $2 billion.
Hutchison Telecom, with its local minority partners, owns 67% of Hutchison Essar. Vodafone said Hutchison Telecom's partners, who between them hold a 15% interest in Hutchison Essar, have agreed to retain their holdings and partner with Vodafone. Vodafone's interest will be 52% after the deal is completed, and it will exercise full operational control over the business.
Hutchison Essar is the country's fourth-largest mobile operator and has a 16% share in the mobile market. India is one of the world's fastest-growing mobile markets; the country is adding about 5 million mobile subscribers every month. Vodafone, which has 200 million subscribers and is the world's largest mobile phone firm by revenue, is said to have defeated Indian rivals Reliance Communication, Hinduja Group and Essar in the bidding battle.
Subject to regulatory approval, the deal is expected to be completed in the second quarter of 2007. UBS Investment Bank was Vodafone's financial adviser.
Vodafone already holds a 10% stake in India's leading telecom player, Bharti Airtel. Vodafone's statement said it has given Bharti an option to buy the 5.6% direct stake in the Indian firm. Vodafone plans to retain its 4.4% indirect stake in Bharti.
Though Bharti and Hutchison Essar are rivals in the Indian market, Vodafone said it has signed an agreement with Bharti on infrastructure sharing with Hutchison Essar.
"Infrastructure sharing is expected to reduce the total cost of delivering telecommunication services, especially in rural areas, enabling both parties to expand network coverage more quickly and to offer more affordable services to a broader base of the Indian population," Vodafone said.
Essar also released a statement saying, "We have been offered by Vodafone to be their partner. We are at the moment evaluating all our options in the best interest of the group." Since foreign firms can own only up to 74% of Indian telecommunications companies, Vodafone will have to partner with an Indian firm.
The deal is critical for Vodafone CEO Arun Sarin, who is under pressure to expand the company's global reach as growth slows in saturated European markets. Vodafone is aiming for a 20% to 25% market share in the Indian market by fiscal year 2012.
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