Arun Sarin, Vodafone’s chief executive, knows India well. He was born and grew up there, and graduated in engineering from the Indian Institute of Technology in Kharagpur.

During the 1990s he was president of AirTouch Communications, the US mobile operator that subsequently merged with Vodafone. In 1995 he unveiled AirTouch’s purchase of a minority stake in RPG, one of India’s mobile operators, which Vodafone later sold. In 2005, Vodafone bought a 10 per cent stake in Bharti Airtel, India’s leading mobile operator.

Last month Mr Sarin reiterated Vodafone’s ambitions to increase its stake in Bharti Airtel, given India has the fastest growing mobile market in the world. He also appeared to insist that it was possible for Vodafone to eventually secure control of Bharti Airtel.

“India is a large country. We have taken an interest in the number one player, which is growing very rapidly …over the next several years we might find interesting ways in joining hands and increasing our share,” he said.

However, Sunil Bharti Mittal, chairman of Bharti Enterprises and founder of Bharti Airtel, is reluctant to let Vodafone increase its stake, let alone take control.

Vodafone’s board on Thursday night met to decide on a possible offer for Hutchison Essar, India’s fourth largest mobile phone operator.

Vodafone is eyeing deals in emerging markets bec­ause it is keen to boost the group’s slowing revenue growth and declining profit margins.

At its interim results in November, Sir John Bond, Vodafone’s chairman, app­eared to put his support behind such deals. He highlighted how emerging markets were expected to make up 70 per cent of the growth in mobile handset sales over the next five to 10 years.

Bankers say Sir John is unhappy that Vodafone may have boxed itself into a minority stake in Bharti Airtel and is looking for change.

Hutchison Telecommunications International’s app­arent willingness to sell
its 67 per cent stake in Hutchison Essar, albeit at the right price, provides Vodafone with an attractive opportunity because the four major players in India’s mobile market are fairly evenly matched.

Bharti Airtel has a 22 per cent share of subscribers, Reliance Communications 21 per cent, BSNL 19 per cent and Hutchison Essar 17 per cent.

The risks for Vodafone are considerable. It could antagonise its investors if it pays a high price for Hutchison Essar.

Some of Vodafone’s investors became angry after the group warned in November of slowing revenue growth.

Their concerns were intensified by Vodafone’s deals, notably in Turkey. Some investors thought the group overpaid for Telsim, Turkey’s second largest mobile operator, which was bought for $4.6bn.

Vodafone could end up paying a steep price for growth. At an enterprise value of $14bn, Vodafone would be paying 14 times Hutchison Essar’s forecast 2007 earnings before interest, tax, depreciation and amortisation (ebitda).

That compares to trading multiples of 11 times 2007 ebitda for Bharti Airtel and Reliance. Vodafone is trading on between five and six times.

Vodafone could find itself in a bidding war with Reliance, which has been talking to private equity firms about making a $14bn offer.

The company would be keen to avoid a repeat of its ill-fated attempt to buy AT&T Wireless in 2004. It made a $38bn offer, but was trumped at the last minute by Cingular.

Lord MacLaurin, Vodafone’s former chairman, admitted after the failed bid that it had damaged the group’s relations with investors. The group’s shares fell in the immediate aftermath. But Vodafone’s inv­estors reacted cautiously but positively to a possible offer for Hutchison Essar. “This is an on-strategy acquisition,” one shareholder said.

Another shareholder said Vodafone’s acquisition rec­ord was not covered in glory, but added that investors would give the group the benefit of the doubt on Hutchison Essar.

The shareholder said relations with the group remained fragile. “The price paid is key. There is a degree of rehabilitation but if Arun Sarin is seen doing something egregious, the goodwill would dissipate fast.”

Investors have been partly won over by Vodafone’s improving stock price over the past four months. They have also been reassured by Sir John’s appointment as chairman.

As former chairman of HSBC, the international bank with a leading position in Asia, he won a reputation as a tough businessman who made shrewd acquisitions in emerging markets.

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