Vodafone’s hopes of taking over Hutchison Essar could be complicated by a dispute over pre-emption rights between Hong Kong’s Hutchison and India’s Essar, which own the mobile phone joint venture.
Essar is understood to be arguing that it has right of first refusal over any bid by an Indian company, and over any offer – foreign or Indian – that would reduce Hutchison Telecommunications International’s 67 per cent stake in the joint venture to below 40 per cent.
The Hong Kong company, however, is believed to be arguing that the pre-emption rights apply only to a bid by an Indian company for the venture, India’s fourth largest mobile phone operator.
The issue is clouding what would be already a potentially complex transaction for Vodafone. Also interested in acquiring the venture are Reliance Communications, India’s second-largest mobile phone operator, and a group of private equity companies.
The FT reported last week that Essar had also made an initial approach to Hutchison for its stake worth $11bn, valuing the company at about $16.4bn, although it has yet to decide whether to bid. That compares with an offer from Vodafone valuing the company at up to $18bn.
If Vodafone or any other bidder failed to come to an agreement with Essar, which holds 33 per cent of the joint venture, there is a threat that their bids could become tied up in litigation over the issue of pre-emption rights.
Both Hutchison and Essar declined to comment.
A lawyer with expertise on Indian corporate pre-emption rights played down the differences between Hutchinson and Essar, saying the issue had not yet crystallised into a legal battle.