Vodafone will start due diligence today on a potential $18bn-$19bn (£9.3bn-£9.8bn) offer for Hutchison Essar, the privately held mobile operator at the centre of perhaps the most keenly contested bid battle in Indian corporate history.
The UK group has appointed Ernst & Young to help it scrutinise Hutchison Essar's books, which have remained closed to rivals such as Reliance Communications, which have requested access to detailed financial information.
Fifteen executives from Vodafone, which is being advised by UBS, are understood to have flown to Mumbai over the weekend to undertake parallel due diligence on the operational side of the business, according to people close to the negotiations.
By allowing Vodafone de facto exclusivity to pursue the deal, Hutchison Whampoa, the Hong Kong group that owns 67 per cent of Hutchison Essar, is in effect burning its bridges with Essar, the minority shareholder in the Indian operator.
Essar, an Indian conglomerate, has offered to buy the two-thirds of the company it does not own for about $11bn and is now almost certain to go to court to try to enforce its interpretation of a disputed shareholder agreement with Hutchison.
"Hutchison's decision to allow Vodafone to look at the books is a clear indication that they see the relationship with Essar ending in court and that Vodafone is prepared to take on the legal risk," said one industry executive.
Vodafone shareholders have so far been cautiously positive on a deal for Hutchison Essar. The shares lost some ground in late December when the deal was announced but have since rallied.
However, some shareholders have said that Vodafone must demonstrate that any deal was in line with its investment criteria outlined last May.
Essar argues that it has the right of first refusal over any bid by an Indian company, and over any offer - foreign or Indian - that would reduce Hutchison's67 per cent stake in the joint venture to below 40 per cent.
The Hong Kong company, however, maintains the pre-emption rights apply only to a bid by three Indian mobile operators - Bharti Airtel, Tata and Reliance Communications - for the venture, India's fourth largest mobile network operator.
A document drafted by majority shareholder HutchisonWhampoa and filed with the US Securities and Exchange Commission in 2004 also suggests that Essar's right of refusal exists only in relation to the three rival operators.
Other potential bidders to have emerged include the Hinduja brothers, controlling shareholders through the diversified Hinduja Group of Ashok Leyland, India's second largest commercial vehicle and diesel engine manufacturer.
By pursuing Hutchison Essar, Vodafone is in effect signalling an end to the "strategic partnership" it has with Bharti Airtel and showing its determination to bulk up in the world's fastest growing telecommunications market.
The Bharti tie-up was announced 15 months ago when Vodafone paid $1.5bn for a 10 per cent stake in the Indian market leader.
Vodafone declined to comment on the negotiations.
