Essar steps back from fight with Vodafone

Vodafone's acquisition of India's fourth-largest mobile phone company moved a step closer to completion after the owners of Essar Group, holder of a minority stake in the business, appeared to rule out blocking the deal through litigation. Essar said it remained committed to the business and would continue talks to partner with Vodafone in India.

Vodafone won the auction to acquire Hutchison Essar last weekend after agreeing to pay Hutchison Telecommunications International £5.6bn for its 67 per cent stake in the Indian operator. Yet the deal was complicated by Essar's insistence that it had first right of refusal to buy the majority stake. Essar, as well as other local players, had unsuccessfully bid for the Hutchison stake and some observers feared that the Indian company, owned by the Ruia family, could litigate to block the deal.

Arun Sarin, Vodafone's Indian-born chief executive, jetted out to meet with the Ruias after an appearance at the 3GSM conference in Barcelona on Tuesday. At the conference, he said his preference was that Essar remained a 33 per cent partner in the business but that Vodafone would offer to buy out the minority stake at the same price it paid Hutchison. Mr Sarin has previously described Essar as a "natural partner" because Vodafone is allowed a maximum stake of 74 per cent in the business due to India's foreign ownership laws.

The Vodafone charm offensive appears to have paid off after Essar published a statement following the meeting between Mr Sarin and the Ruia family in Mumbai. "Essar is a founding shareholder of Hutchison Essar and the group sees telecoms as a core part of the business portfolio in the long term... We will make a decision with regards to our future course of action in due course," the company said.

Ravi Ruia, vice-chairman of Essar, said: "We are clear that Essar is a long-term player in the telecom industry and we have no plans to exit this company or business." Essar is a conglomerate with business in diverse sectors like steel, IT, shipping and construction.

Vodafone and Essar will look to iron out a shareholder agreement to replace the structure of the relationship between Hutchison and the Indian company. That agreement is likely to cover issues such as board positions, rights over business plans and acquisitions and options to buyout the partner's stake if one of the company's decides to exit the operator.