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Vodafone to control Hutchison Essar

Vodafone Group Plc will buy control of Hutchison Essar Ltd, India's fourth-largest mobile-phone company, for US$11.1 billion to gain its first network in the world's fastest-growing wireless market.

Vodafone, the world's largest wireless carrier, won an auction for a 67 percent stake from Hong Kong billionaire Li Ka-shing's (李嘉誠) Hutchison Telecommunications International Ltd (和記電訊), Vodafone chief executive officer Arun Sarin said on Sunday.

The Newbury, England-based company will offer to buy the remaining 33 percent from Mumbai-based Essar Group, he said.

Vodafone beat Reliance Communications Ltd and Hinduja Group in the bidding for Hutchison Essar in the company's biggest deal since Sarin became CEO in July 2003.

The expansion in India, where mobile-phone companies are adding about 6 million users a month, will help counter slowing growth in Western Europe.

"We all know India is a fast-growing market. What I need to know is how Vodafone plans to keep on growing to make the deal worthwhile," said Philippe Kiewiet de Jonge, who manages approximately US$150 million, including Vodafone stock, at Amsterdam-based ABN Amro Asset Management.

"The deal makes strategic sense, but whether it will be a success will depend on what they tell me on the numbers behind the transaction," he said.

Vodafone will directly own a 52 percent stake in Hutchison Essar, while local partners will hold 15 percent on its behalf to meet Indian regulatory rules, the company said. Foreign companies can own up to 74 percent of telecom service providers.

Trading in Hutchison Telecom shares was suspended in Hong Kong yesterday, "pending the release of an announcement regarding a very substantial disposal," the company said in a statement to the Hong Kong Stock Exchange, without providing further details.

The deal values Hutchison Essar at US$18.8 billion, including debt, Vodafone said. The company, which will assume debt of about US$2 billion as part of the transaction, said it will offer to buy Mumbai-based Essar's stake at the same price per share being paid to Hutchison Telecom.

The acquisition will add to Vodafone's earnings five years after the deal is completed, Sarin said. Vodafone will gain operational control of Hutchison Essar through its 52 percent direct stake in the company.

Minority partners Asim Ghosh, managing director of Hutchison Essar, holds 6.25 percent of Hutchison Essar and businessman Analjit Singh, who originally controlled the company then known as Hutchison Max, owns 8.75 percent.

"It's a steep price. I need more clarity on savings and spending plans," ABN's Kiewiet de Jonge said. It's "too early to say if this is a good deal."

Vodafone is already involved in India through its 10 percent of Bharti Airtel Ltd, the country's largest mobile-phone operator.

Vodafone said it gave Bharti an option to buy back a 5.6 percent stake for US$1.6 billion and will retain the remaining 4.4 percent stake.

Bharti yesterday said the two companies will share infrastructure such as telecommunication towers, allowing them to expand their network into India's rural areas.
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