Vodafone has secured operational control of India’s fourth-largest mobile company, Hutchison Essar, clearing the way for the British firm’s expansion into the fast-growing market.The deal, announced on Thursday, gives the Essar group an option to sell its 33 percent stake in Hutchison Essar to Vodafone for $5 billion between the third and fourth years of the deal’s completion, expected in the next 10-15 days.
Alternatively, the Indian conglomerate with interests in steel, oil and shipping could sell shares worth between $1 billion and $5 billion in the company, to be renamed Vodafone Essar, to Vodafone at an independent valuation.
Vodafone agreed to acquire a majority stake for $11.1 billion last month from Hong Kong’s Hutchison Telecommunications International Ltd following an auction in which it beat three rivals including Essar.
Essar had previously demanded joint management of the company and said it might seek to increase its stake, raising fears Vodafone’s plans in India would not run smoothly.
“It’s good the two companies have reached an amicable partnership agreement. The market can now move on to anticipate operational success rather than ownership debates,” said Dresdner Kleinwort analyst Robert Grindle.
Another potential irritant to Vodafone’s India plans appeared resolved as Hutchison announced it had provisionally agreed to pay $415 million to Essar in return for the Indian group’s cooperation in completing the deal.
“Under the settlement agreement, Essar will take all reasonable steps to ensure completion of the transaction and will refrain from initiating any action that may inhibit or delay the completion of the transaction,” Hutchison said.
Vodafone shares were 1.5 percent up at 136p by 1320 GMT.
Chief Executive Arun Sarin said he expected Vodafone Essar, which now ranks behind Bharti Airtel, Bharat Sanchar Nigam Ltd and Reliance Communications, to become India’s top operator in three years.
“We have a strong springboard and we want to be number one by 2010. If (Vodafone Essar Chief Executive) Asim Ghosh can do it earlier, he can expect a good bonus,” Sarin told a news conference in New Delhi.
Sarin said he expected Vodafone Essar, which had 25.3 million users at the end of February, a 16 percent share, to raise that to 20-25 percent in the coming years.
Vodafone owns a 10 percent stake in Bharti, but will sell 5.6 percent back to Bharti in a parallel deal to the Hutchison Essar transaction. The group will continue to own a 4.4 percent stake in an unlisted Bharti holding company.