Vodafone’s board is set to meet later on Thursday to consider a proposed $13.5bn-plus offer for Hutchison Essar, the fourth biggest mobile operator in India, in a move likely to spark a bidding war with Reliance Communications.
The world’s leading mobile phone operator by revenue is due to decide whether to press ahead with what would be the largest offer to buy an Indian company.
Vodafone executives plan to table an offer in person on Friday to Canning Fok, managing director of Hutchison Whampoa, and Ravi Ruia, vice-chairman of Essar, who are both scheduled to be in London.
A Vodafone bid would underline the group’s ambitions to boost slowing revenue growth in its core European businesses by buying assets in emerging markets. Arun Sarin, Vodafone’s chief executive, last month said he was interested in “selective acquisitions”. Vodafone declined to comment last night.
However, Vodafone shares, which closed at a year high yesterday, were the worst performers on the FTSE 100 on Thursday as investors fretted about the size of the proposed acquisition.
Foreign ownership restrictions in India prevent Vodafone from holding directly more than 74 per cent of Hutchison Essar, which means it may have to list a minority stake in the operator or find a friendly Indian company for the remaining 26 per cent.
An acquisition would give Vodafone control of a key player in the world’s fastest growing mobile phone market. In October, 6.7m new subscribers brought India’s total to 136m, compared with China’s 5.9m additions and 449m total customers.
A Vodafone bid would probably trigger a sharp riposte from Anil Ambani’s Reliance Communications. As the second biggest operator in the Indian market, Reliance would be able to exploit big synergies with Hutchison. One banker familiar with the situation said: “Vodafone is serious about Hutch Essar, so is Reliance, and there may be plenty of others to come.”
Hutchison Essar is 67 per cent owned by Hutchison Telecom International and 33 per cent by Essar, a diversified conglomerate with shipping, steel and oil interests controlled by the Ruia family. Essar, which has certain pre-emption rights over the Hutchison stake, would probably block any attempt by Vodafone to acquire just the 67 per cent stake owned by the Hong Kong-based group.
A person close to Reliance Communications, which has teamed up with private equity houses including Blackstone to consider an offer for Hutchison’s stake, said the company was monitoring developments but had not yet decided to make a formal bid.
Sunil Bharti Mittal, chairman of Bharti Enterprises and founder of Bharti Airtel, the market-leading Indian mobile operator, has refused an invitation from Vodafone to undertake a joint bid for Hutchison Essar.
Bankers said Mr Mittal feared losing control of the main cash-cow of his rapidly diversifying group.
If successful with Hutchison Essar, Vodafone would almost certainly be required to sell its 10 per cent stake in Bharti Airtel.
