Economic Times | April 8, 2011 | Deepali Gupta
MUMBAI: Vodafone’s $5-billion deal to buy out Essar in India’s third-largest mobile phone company may run into trouble with the local partner seeking $600-700 million more for its 33% holding.
Essar group, known for its strong-arm negotiation tactics, will invoke a Reserve Bank of India resolution that stipulates a minimum value for Indian shares in privately-held companies, two people familiar with the development said.
The April 2010 RBI resolution, which sought to protect domestic companies from aggressive multinational buyers, mandates that Indian shares in privately-held firms should be valued under the discounted cash flow method. Under this method, Essar’s 11% stake in Vodafone Essar is worth $1.8-1.9 billion, compared with the purchase option that pegs it at $1.2 billion.
Vodafone purchased 67% interest in the Indian telco from Hutchison Whampoa and two Indian shareholders Analjit Singh and Ashim Ghosh in 2007 in a $11-billion deal. At that time, Essar and Vodafone agreed that the former could sell its interest in the company to the latter for $5 billion till May 2011.