Vodafone shells out $11.1B for Indian carrier

International operator Vodafone Group plc has agreed to acquire a majority interest in Indian mobile operator Hutchison Essar Ltd. for $11.1 billion-however, whether a major shareholder will cooperate is unclear.
Vodafone said it had reached the multibillion-dollar deal to acquire companies that control a 67-percent interest in Hutch Essar from Hutchison Telecom International Ltd. Vodafone said that it would offer to buy out the Essar Group’s 33-percent interest in the wireless carrier at the same price it offered HTIL, and that arrangements with other minority holders would result in a post-acquisition shareholder structure that meets India’s requirements for foreign ownership.
But Reuters India reported that the Essar Group said it had no plans to exit the company. The news agency said that Vodafone CEO Arun Sarin had met with members of the Ruia family which controls the conglomerate, and quoted Sarin as saying that Vodafone looked forward to a “wonderful partnership” with the Ruias.
The Economic Times reported in December that the Essar Group had made an offer of its own for Hutichson’s 67-percent stake. The publication reported at the time that Essar’s stake afforded the company several options: buy out Hutchison, cash out its own stake or stay on as a partner to a company which bought out Hutchison.
Vodafone also said that it has set up a Memorandum of Understanding with another Indian operator, Bharti Airtel Ltd., for “a comprehensive range of infrastructure-sharing options in India” for Hutch Essar. Vodafone has a 10-percent direct interest in Bharti, but agreed to allow another Bharti group company to buy 5.6 percent of that interest for $1.6 billion.
Hutch Essar and Bharti will “continue to compete independently,” Vodafone said, but the infrastructure-sharing agreement 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 indicated that it would benefit from the acquisition by scoring a controlling position in a leading operator in the fast-growing Indian mobile market. Hutch Essar counted 23.3 million customers at the end of 2006, or about 16.4 percent of the national market share. Meanwhile, the infrastructure sharing would substantially reduce network operating and capital expenditures, Vodafone said.