New Delhi, March 15: The world’s number one mobile phone company, Vodafone, today forged a partnership pact with the Essar group, clearing a major hurdle to its plans for India.
The agreement creates a new entity — Vodafone Essar — in place of Hutchison Essar and gives Vodafone operational control of the company. Essar also gets rights consistent with its shareholding, including proportionate representation on the board of Vodafone Essar.
Essar also has a put option to either sell its entire 33 per cent stake to Vodafone for $5 billion between the third and the fourth year of the joint venture or sell between $1 billion and $5 billion of shares to Vodafone at “an independently appraised fair market trading value”.
The option offers extra protection to Vodafone since it eliminates the possibility of a rival snapping up shares of Essar. Vodafone Essar will have Essar’s Ravi Ruia as the chairman and Vodafone’s Arun Sarin as the vice-chairman.
A joint statement issued today said, “The partners have agreed that Hutchison Essar will be renamed Vodafone Essar and in due course the business will market its products and services under the Vodafone brand.”
Sarin today acknowledged Essar’s contribution to the growth of the Hutch brand and said he expected to get the nod from the Foreign Investment Promotion Board (FIPB) for Vodafone’s plans in the next few weeks.
Commerce minister Kamal Nath also said Vodafone’s acquisition in Hutchison Essar appeared to be in conformity with the law and the FIPB would take up the case in a few days.
Sarin said Vodafone’s MoU with Bharti on sharing infrastructure signed immediately after the Hutchison deal did not guarantee exclusive carriage rights to Bharti over Vodafone Essar’s long-distance traffic. “An MoU is not a definitive agreement. It is not legally binding. It is just a statement of intent,” he said.
The MoU angered the Ruias and threatened to irreparably damage their relationship with Vodafone.
Sarin said the MoU was not part of a quid pro quo to get Bharti’s no-objection certificate for Vodafone’s plans. He said the “waiver from Bharti is a self-standing issue”.
Ravi Ruia said the issue of the national long distance (NLD) carrier for Vodafone Essar will be discussed by the new board and “whoever offers us better terms will be considered”.
Sarin, however, said Bharti would be a strategic ally in infrastructure sharing for rural growth and that he intended to convince Essar of Bharti’s utility in this regard.
The two companies also said they would explore opportunities in West Asia.
Hutchison Telecom International (HTIL), which sold its controlling stake in Hutchison Essar to Vodafone, will pay over $415 million (about Rs 1,865 crore) to Essar as part of a settlement to ensure completion of the deal.
HTIL today said it has reached a settlement with the Essar group regarding the proposed sale of its entire stake in Hutchison Essar to Vodafone. Under the agreement, Essar would take all steps to ensure completion of the transaction and refrain from initiating any action that may inhibit or delay the transaction, HTIL said.