Vodafone confirms Indian ambitions

Vodafone on Friday confirmed it was considering the acquisition of a controlling stake in Hutchison Essar, India’s fourth largest mobile operator.

On Thursday, Vodafone’s board gave the go ahead for an offer to be made. Vodafone said in a statement on Friday: “The board of Vodafone continues to believe the mobile market in India has great potential and is therefore considering the acquisition of a controlling interest in Hutch Essar.

“Such a transaction would be consistent with its stated strategy of seeking selective acquisition opportunities in developing markets.

“The process is at an early stage and may or may not lead to a transaction.”

Leading Vodafone investors on Thursday positively to the prospect of a $13.5bn-plus offer by the group for Hutchison Essar.

Some analysts expressed concern that Vodafone could overpay for Hutchison Essar because of the possibility of a bidding war with Reliance Communications, India's second- largest mobile operator.

Hutchison Whampoa holds a 67 per cent stake in Hutchison Essar through Hutchison Telecommunications International. Hutchison Whampoa declined to comment on Thursday. However, people familiar with the Hong Kong-based conglomerate said a $13.5bn (£6.9bn) offer would be regarded as low and unlikely to result in a deal.

Hutchison Telecommunications International said in a statement on Friday that it had “been approached by various potentially interested parties regarding a possible sale of its equity interests in Hutchison Essar Limited, the company’s mobile operations in India. No agreement in respect of such a possible sale has been entered into up to today’s date. The company reiterates that there is no assurance that a sale may result from these approaches”.

Vodafone's relations with investors have been through a troubled period since the group warned of slowing revenue growth last year. However, leading Vodafone investors said they were willing to look at the case for buying Hutchison Essar.

"Prima facie this acquisition would put the group in a stronger position," said one shareholder. Vodafone's advisers contacted some investors to tell them any offer would have to be consistent with financial criteria for deals that it published at its 2005-06 results in May.

Another shareholder said: "The market is more prepared to look positively on the group now. Shareholders will give Vodafone the benefit of the doubt."

A third said investors would be poring over the figures around any offer for Hutchison Essar, to make sure they complied with Vodafone's criteria on deals.

Vodafone's shares on Friday were down 0.5p in early trading at 143.25p.

Simon Weeden, analyst at Goldman Sachs, which is also one of Vodafone's advisers, highlighted how the group could part- fund an offer by selling its 10 per cent stake in Bharti Airtel, India's leading mobile operator.