The Telegraph
Since 1st March, 1999
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Vodafone signals bid for Hutch-Essar
- All-cash offer does the rounds

London, Dec 22: Vodafone, the UK-based telecom giant, today confirmed days of speculation by formally announcing that it is considering acquiring a controlling stake in Hutchison Essar, India’s fourth largest mobile phone operator.

It is believed that Vodafone is pondering a $13.5-billion (£6.9 billion) bid but did not name a price and warned that the process was at an early stage.

The company said from its headquarters in Newbury, Berkshire: “The board of Vodafone continues to believe the mobile market in India has great potential and is therefore considering the acquisition of a controlling interest in Hutchison Essar.”

The statement added: “Such a consideration would be consistent with its stated strategy of seeking selective acquisition opportunities in developing markets.”

Vodafone, which registered a half-yearly loss of £3.3 billion in November, needs to compensate for slow growth in the UK and western Europe by expanding in emerging markets.

Vodafone shares fell 1.22 per cent to 142 pence today, as news of the bid did the rounds.

Reports from London indicated that Vodafone had mandated Swiss banking major UBS to advise on the deal.

Cash call

The buzz is that Vodafone — which has raised £3.2 billion in the past six months from the sale of minority stakes in telecom companies in Switzerland and Belgium — could be mounting an all-cash bid for the Hutchison Essar stake. An all-cash bid could put pressure on its rivals to respond with similar offers, straining their own coffers.

HTIL statement

Earlier in the day, Hutchison Telecommunications International, which has a 67 per cent stake in Hutchison Essar Ltd, issued a statement in Hong Kong saying it had “been approached by various potentially interested parties regarding a possible sale of its equity interest in Hutchison Essar Ltd, the company’s mobile operations in India.” Share prices of Hutchison Telecommunications saw sharp changes on the bourses today, with the Hong Kong-based firm’s scrip witnessing a 3.51 per cent jump.

“No agreement in respect of such possible sale has been entered into until today. The company reiterates there is no assurance that a sale may result from these approaches,” HTIL said in a statement.

Meanwhile, Malaysia’s Maxis Communications, where Hutch-Essar’s deputy managing director Sandeep Das has recently taken over as CEO, is understood to have informed HTIL about its intention to acquire the Indian venture, possibly at $14 billion.

Sarin role

One newspaper said today that Arun Sarin, Vodafone’s India-born chief executive who came to the UK via the US, “badly needs to improve his reputation in the City after a series of aborted, failed or criticised deals — and concerns that mobile telecom is becoming mature in Vodafone’s European heartland”.

Sarin has had a difficult time since taking charge at Vodafone. The Times said today: “Although the recent arrival of Sir John Bond as chairman has calmed City nerves, Sarin will need to be seen not to overpay — and then successfully grow in the subcontinent to show that Vodafone can develop major businesses away from its home region.

“Yesterday, one major institutional investor cautioned that the emerging situation ‘sounds like a honey pot for investment bankers’, reflecting worries that Vodafone could end up getting dragged into an expensive buy.”

Shareholder support

The Daily Telegraph also said one of Vodafone’s top 10 shareholders has given support to Sarin. “Richard Lacaille, chief investment officer of Europe for State Street Global Advisers, urged Sarin ‘not to be cowed’ by other investors calling for immediate cash returns.

“It would be remiss of the management to ignore growth possibilities from acquisitions simply because some people want greater returns now. You wouldn’t want the management to be cowed in respect of acquisitions and to regard instant returns as the only answer,” he said.

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