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Vodafone on Wednesday faced a new rival in its drive to win control of Hutchison Essar after a minority shareholder turned the battle for control of the Indian mobile operator into a three-way fight.
Essar, the Indian conglomerate that holds a 33 per cent stake in Hutchison Essar, has offered $11bn (€8bn) for the rest of the company, the fourth-largest in the Indian mobile market.
Ravi Ruia, vice-chairman of Essar, met Canning Fok, managing director of Hutchison Whampoa, in Hong Kong on Tuesday. Hutchison Whampoa owns Hutchison Telecom, holder of the majority stake in Hutchison Essar.
People familiar with the meeting said it was the first time Essar had discussed formally buying out Hutchison Whampoa’s holding.
Vodafone, the UK-based group, has meanwhile made an approach to Hutchison Telecom that values Hutchison Essar at $17bn-$18bn, according to people close to the talks.
Extra costs associated with the deal would add at least another $2bn to the price tag as Vodafone seeks expansion in the world’s fastest-growing mobile market.
One person said: “Essar has decided that it wants to buy Hutchison Essar and a deal depends on price. Its 33 per cent stake gives it a very strong bargaining position in any discussions.”
He added: “After weeks of sparring, this was the meeting when Essar was asked to put up or shut up. It has decided it wants to play.”
People close to the deal said there were now three camps in the race: Vodafone, Essar and Reliance Communications, India’s second-largest wireless operator. Reliance has lined up financing from HSBC, JPMorgan and Barclays, and is in talks with private equity groups Blackstone, KKR, Carlyle and Apax for a potential bid.
Essar’s offer threatens to stymie negotiations. Reliance has held off from bidding for the company until it becomes clear that Essar would relinquish its stake. But Essar has first right of refusal over any bid Hutchison receives from an Indian company, although this does not apply to a foreign suitor.
According to Indian law, if a telecoms company wants to buy another operator in the same network area, it must buy 100 per cent of the company or just
10 per cent. This means Reliance must buy all or none of Hutchison Essar.
Several hurdles also stand in Vodafone’s way. The world’s largest mobile operator by revenue cannot own all of Hutchison Essar because Indian regulation caps foreign direct investment in telecoms companies at 74 per cent.
Hutchison, Vodafone, Reliance and Essar declined to comment.