Hutchison Essar battle heats up

The battle for control of Hutchison Essar accelerated on Friday night, with Vodafone and Essar making bids for India’s fourth-largest mobile operator, according to people familiar with the matter.

Vodafone, the world’s largest mobile phone group by revenue, declined to comment. Essar, the Indian conglomerate that owns 33 per cent of Hutchison Essar, also refused to comment.

But people with knowledge of the situation said the bids gave Hutchison Essar an enterprise value of between $17bn (£8.7bn) and $18bn.

Reliance Communications, India’s second-largest mobile operator, and the Hinduja group, another Indian conglomerate, are expected to make bids. The groups declined to confirm they had done so.

The bids were made after Hutchison Whampoa, the Hong Kong-based conglomerate that owns 67 per cent of Hutchison Essar, set a tentative deadline of midnight last night Hong Kong time.

Vodafone made an indicative offer of $16.5bn for Hutchison Essar around Christmas after Hutchison Whampoa said it was willing to sell its stake.

But the prospect of a bidding war led analysts to estimate Hutchison Essar’s enterprise value at up to $20bn.

Arun Sarin, Vodafone’s chief executive, is keen to buy Hutchison Essar as part of efforts to reverse the group’s slowing revenue growth.

The spectre of protracted litigation hung over the bidding process on Friday. Essar has been threatening to use the courts to enforce what it believes is a right of first refusal over any bids for Hutchison Essar.

People familiar with the situation said Essar would seek to exercise the right if it turned out that Vodafone had trumped its bid for Hutchison Essar. These people said Essar was willing to either buy Hutchison Whampoa’s 67 per cent stake or, if Vodafone made an exceptionally high bid, sell its 33 per cent stake.

Altimo, the telecoms investment arm of Russia’s Alfa group, was also said to be considering a bid. Altimo owns minority stakes in European telecoms assets, including Turkcell, Turkey’s largest mobile operator.

Vodafone is keen to buy Hutchison Essar because India is the world’s fastest-growing mobile market.

Some of Vodafone’s investors are worried that it could pay too much for Hutchison Essar. But last week Mr Sarin gave a “cast iron guarantee” that any deal would comply with the group’s financial criteria on acquisitions.

Vodafone is considering network-sharing with rivals in India, which could deliver big cost savings, and may enable any Hutchison Essar deal to comply with the financial criteria.