Vodafone buys Hutch-Essar for $19.3 bn

British telecom giant Vodafone today emerged victorious in the battle for Hutchison Essar Ltd, India's third-largest private mobile services operator, with an offer that gives the company an enterprise value of about $19.3 billion.

Ending the two-month-long drama, the Hutchison Telecommunications International Board met in London today and chose Vodafone over the Anil Ambani-controlled Reliance Communications, the Ruias of Essar and the Hindujas for sale of its 67 per cent stake in Hutchison Essar.

Vodafone has paid a price of around $794 per subscriber to clinch the deal. The valuation is in line with the $33 billion market capitalisation of Bharti Airtel, the country's largest private mobile services operator, and the $22 billion market capitalisation of Reliance Communications, the second largest operator.

The acquisition will give Vodafone, which has over 200 million subscribers globally, a strong presence in the fastest growing market for mobile services "� Hutchison Essar has close to 24 million customers. Vodafone also has a 9.9 per cent stake in Bharti Airtel, which it is now expected to sell.

A statement issued by Essar, which already owns 33 per cent in Hutchison Essar, indicated that Vodafone had proposed to partner it in the joint venture.

"We have been offered by Vodafone to be its partner. We are evaluating our options in the best interests of the group," it said.

Vodafone was the first to announce its intention to acquire a controlling stake in Hutch-Essar after HTIL put its stake on the block in December.

Arun Sarin, the India-born CEO of the company, had come to India last month to discuss regulatory and other issues with the country's finance, commerce and telecom ministers. During his visit, Sarin had said he was open to partnering the Ruias because of their stake in Hutchison-Essar.

Top Essar functionaries, however, said they would make up their mind in the next two to three weeks.

While one option entails continuing as a partner in Hutchison Essar, another option involves invoking the "tag along rights" under the shareholders agreement, through which it can sell its stake along with Hutchison to the new buyer at the same price. That would make the Ruias richer by over $6 billion.

As foreign shareholding in an Indian telecommunications firm cannot exceed 74 per cent, Vodafone will need to find a new Indian partner in such an eventuality.

The third option, of course, is to go to court to enforce the right of first refusal, as reflected in the shareholders' agreement, on which there has been a dispute between the two partners.

For CDMA player Reliance Communications, however, the failure to grab Hutchison Essar is a major setback, especially as it would have fitted in with Anil Ambani's vision to enter the GSM space.

It would have also given it the leading position in the mobile space, pushing it far ahead of Bharti in terms of market share.

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ALL IN TWO MONTHS

December first week: Reliance Communications plans bid for Hutch-Essar

December third week: Vodafone joins the race, ropes in UBS as advisor

January first week: Hutch, Ruias differ on right of first refusal; Hindujas say they too will bid; RCom gets $2 billion commitments from private equity firms

January second week: Vodafone starts due diligence on Hutch-Essar, followed by the Ruias; Hindujas place a non-binding bid

February 9: Final day for submitting bids. Essar group, Reliance Communications, Hindujas and Vodafone place their final bids

February 10: Hindujas confirm to have partnered with Qatar Telecom and Russia's Altimo to form a consortium

February 11: Vodafone wins the race with a $19.3 billion bid