Vodafone offers olive branch to Essar

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Vodafone on Wednesday sought to ease mounting tension between it and the Essar Group over the UK company’s deal to buy a controlling stake in Hutchison Essar, India’s fourth-largest mobile operator.

But even as Vodafone said it hoped Essar would stay on as a partner in the joint venture, it pointed out that the Indian conglomerate’s influence was limited to that of a 33 per cent stakeholder.

“We welcome Essar to stay and build this company,” said Arun Sarin, chief executive of Vodafone, in New Delhi on Wednesday. “My first, second and third preference is that Essar stays.”

But asked whether Vodafone would share management control of Hutchison Essar, Mr Sarin said: “A 33 per cent stake is better than a 5 or 10 per cent stake but it not a controlling stake.”

He added, “Our dealings with them are completely consistent with being a 33 per cent partner.”

On Sunday Vodafone emerged the winner of a four-way race to buy a 67 per cent stake in Hutchison Essar from Hutchison Whampoa, the Hong Kong conglomerate. The deal values Hutchison Essar at nearly $19bn.

Essar is displeased with a preliminary agreement between Vodafone and Bharti Airtel, India’s leading mobile operator, to share 70,000 telecom towers and save infrastructure costs during rural expansion.

On Wednesday, Mr Sarin sought to defuse tension with Essar. “It’s Valentine’s Day. I’m sending roses to them, I’m sending olive branches,” he said. “Let me know if you have any ideas about how I can be nicer to them.”

Vodafone drafted the plan with Bharti during bidding for Hutchison Essar without consulting Essar. “Everything happened in real time,” Mr Sarin said. “During disengagement talks with Bharti, we talked about what we might do together.”

Vodafone has a 10 per cent stake in Bharti Airtel, which must be reduced if the deal goes through. It has granted Bharti the option to buy 5.6 per cent for $1.6bn; Vodafone would retain 4.4 per cent indirect interest.

People familiar with the matter say Essar has threatened legal action to enforce a clause which, it claims, gives it the right of first refusal over Hutchison Whampoa’s 67 per cent stake. Some say the threat is designed to extract a heftier offer from suitors.

“It is our view and our lawyers’ view that Essar does not have right of first refusal vis-a-vis Vodafone. That is clear in our minds,” Mr Sarin said.

Documents filed with Hong Kong regulators reveal that Vodafone reserves the right to walk away from its planned purchase if litigation seeking to thwart the deal is instigated.

Mr Sarin indicated that the time-out period to finalise the deal was about a year. Vodafone has offered to buy the remaining stake from Essar at the same price it offered Hutchison Whampoa and expects a response within several weeks.

If Essar sells, Voda­fone will have to find an Indian partner to comply with limits on foreign direct investment in telecom operations.

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