Vodafone wins battle for Indian giant

vodafone won the battle to secure control of Hutchison Essar, the fourth biggest mobile operator in India, last night in a deal that will cost the British telecoms giant around $13bn (£6.7bn) in cash and debt.

vodafone had been thought to be behind in the race to win the deal, having only formally entered the bidding process last month after its chief executive Arun Sarin secured approval for an offer from Indian trade ministers.

But it emerged yesterday that Hutchison Whampoa, the Hong Kong telecoms company owned by the billionaire mogul Li Ka-Shing, has decided to sell its 67 per cent stake in Hutchison Essar to vodafone in preference to three local bidders.

The deal will cost vodafone $11bn in cash and it will assume a further $2bn of net debt.

Arun Sarin, vodafone's chief executive, said: "This is clear evidence we are succeeding in our development strategy in higher-margin emerging markets."

In addition to vodafone, whose bid valued the company at $19bn, Hutchison Whampoa also received offers from two Indian companies, Reliance Communications and the Essar Group. A third Indian company, the Hinduja Group, led the final bidding consortium. The sale has been confused by a legal dispute with the Essar Group. It already owns a third of the company and has previously claimed that it had a right of first refusal to buy, if and when Hutchison Telecom decided to sell its stake.

But a statement from Essar itself yesterday conceded defeat to its British rival. "$19bn shows just what value has been created by building Hutchison Essar as India's premium mobile service provider," said Ravi Ruia, the company's vice chairman. "vodafone has invited us to be its partner in Hutchison Essar, an offer we are evaluating."

Essar's statement reflects the fact that vodafone will only be able to run the company in partnership with a local operator, because Indian regulations prevent it from holding more than 74 per cent of the company. Last night Mr Sarin said the company was its first-choice local partner but added that it would buy out Essar if necessary.

vodafone would then have to enable other minority shareholders to boost their investments in order to comply with the 74 per cent rule.

Securing control of Hutchison Essar is a coup for vodafone, which is keen to increase its exposure to the growth available in India. The company already owns 10 per cent of Bharti Airtel, India's largest mobile operator, and said yesterday that it had agreed a deal to share infrastructure with it in order to lower development costs.

In addition, Mr Sarin said he had offered Bharti the chance to buy vodafone's 5.6 per cent direct holding in the company for $1.6bn, double the $800m price it paid for the shares 15 months ago. The company will retain a 4.4 per cent indirect holding.

While 6 million new phone users sign up to mobile services in India every month, just 13 per cent of the population owns a handset, which makes it potentially hugely lucrative compared with Western markets.

Hutchison Essar, which has been operating in India since 1994, enjoys strong positions in two of the country's largest markets. Its users account for a fifth of wireless connections in New Delhi and a quarter in Mumbai.

The company's positioning explains, in part, vodafone's willingness to pay top dollar for the company. But the price tag for Hutchison Essar is likely to attract criticism from some vodafone analysts, who have previously warned the company not to overpay for Indian assets.

Mr Sarin said he was paying a fair price "for an asset that is growing at 50 per cent annually in revenue terms, with the infrastructure savings we will achieve, and with the demonstrated success of the company".