Vodafone pays $5bn for Essar stake

By Andrew Parker in London and James Fontanella-Khan in Mumbai

Published: March 31 2011 10:47 | Last updated: March 31 2011 11:08
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Vodafone is to pay $5bn to buy the Essar conglomerate out of the UK mobile phone group’s Indian business.

Vodafone said that put and call options were being exercised, under which Essar would sell its 33 per cent stake in Vodafone Essar, the UK group’s Indian business, for $5bn cash.

The deal should bring an end to an increasingly acrimonious dispute between Vodafone and Essar over how to value the Indian conglomerate’s minority stake in Vodafone Essar.

In 2007 Vodafone bought a 67 per cent controlling interest in what was then Hutchison Essar for $10.9bn. It was then renamed Vodafone Essar.

India has turned into an expensive and unpredictable project for Vodafone. The Indian authorities are pursuing Vodafone for $2.5bn in tax that the authorities maintain is due on the 2007 deal. Vodafone said no tax is due.

At Vodafone’s 2009-10 results, it took a £2.3bn writedown on its Indian business – a move acknowledging the fierce competition in the country.

In 2007, Vodafone granted options to Essar that would enable the conglomerate to sell its stake for $5bn, or to dispose of part of its 33 per cent shareholding at an independently appraised fair market value.

In January, Vodafone objected to Essar’s plans to place part of its 33 per cent stake in an Indian public company. Vodafone feared the move would give an inflated market value to Vodafone Essar.

But on Thursday Vodafone said Essar had decided to sell its entire Vodafone Essar stake for $5bn.

Vodafone owns 42 per cent of Vodafone Essar directly, and a further 18 per cent indirectly. This 18 per cent is held by Indian partners of Vodafone that do not include Essar.

Vodafone has options over a further 7 per cent of Vodafone Essar, taking the UK group’s total interest to 67 per cent.

Indian rules bar Vodafone from owning more than 74 per cent, and the UK group said it would maintain compliance with the regulations after the transaction with Essar is completed.

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