A bidding war appeared set to unfold in coming weeks as Vodafone prepared to make a formal offer to buy a leading Indian cell carrier, a potential acquisition that has drawn the attention of several other high-profile mobile phone companies and private equity firms.
The bid for Hong Kong-based Hutchison Whampoa's controlling stake in India's Hutchison Essar Ltd was important to Vodafone as it would help the British carrier gain a presence in one of the world's fastest growing markets: India is now adding 5 million new mobile phone connections every month, more than China.
For now, Vodafone's biggest competition for the prize is Reliance Communications Ltd, India's second-largest mobile phone company, which would become the market leader if its plans to acquire Hutchison Essar, which is unlisted, came through.
Vodafone's move was also strategic for its chief executive, Arun Sarin, who has come under fire from shareholders for lackluster share prices and criticism that the world's largest mobile phone company lacked a credible strategy for further growth.
A week after the company made its interest public, Sarin -- whose family's roots are in India -- flew to New Delhi to hold talks with top government officials and potential partners.
Winning the confidence of government officials is crucial to such deals in India, where ministers and politicians have a reputation of meddling in merger and acquisitions, especially when foreign companies are involved.
"When it happens, it will be a large transaction. We would like it to be smooth," Sarin told reporters after a meeting last week with Indian Finance Minister P. Chidambaram.
Vodafone emerged as a front runner earlier this month after making an approach that reportedly valued all of Hutchison Essar at between US$17 billion and US$18 billion, which would make it the biggest-ever corporate takeover in Indian history.
Sarin said his company was planning to make a formal takeover offer early next month.
A bidding war appeared inevitable, however.
Hours after Sarin's meetings with Indian officials last Wednesday, the board of Reliance Communications authorized its chairman, Anil Ambani, to raise funds and "take all necessary steps" to counter Vodafone.
A day later, Ambani, one of India's most influential businessmen, met most of the officials who had held talks earlier with Sarin.
Reliance Communications' current market share is close to 20 percent and most of its phones are based on CDMA technology. The company wants to scale up its cellular phone services based on GSM -- the other dominant technology -- which is what Hutchison-Essar offers to nearly 20 million customers.
Media reports have said that Reliance Communications could come with a bid that values all of Hutchison Essar at about US$20 billion.
"They are going to do what it takes to get it," said Romil Shetty, a telecommunications analyst with the consulting firm KPMG.
"At the moment, it seems to be Vodafone [versus] Reliance, but there are some more companies that might get into the fray later," Shetty said.
Among other interested parties were Malaysia's Maxis Communications Bhd and the Hinduja brothers -- Britain-based Indian businessmen who previously held a stake in Hutchison Essar.
Media reports have said several high profile private equity firms, including US-based Texas Pacific Group and Blackstone Group, have also been exploring tie-ups with possible bidders.
Besides rival bidders, Vodafone must be ready to wade through complex Indian rules and regulations, including a 74 percent cap on foreign investment in telecom ventures.
In the case of Hutchison Essar, the story was even more complicated because of the number of stakeholders involved.
Hong Kong-based Hutchison Whampoa holds 52 percent stake in the company, while its India-based associates hold 15 percent. Hutchison Whampoa wants to sell out and its associates have said they are ready to tag along.
India's Essar Group holds the remaining 33 percent and it wasn't clear if it would like to sell its stake or join up with the company that buys Hutchison Whampoa's stake.
Some media reports have said Essar believed it had the first right to buy Hutchison's shares in the joint venture and that the company would try to make most out of the situation, either by buying out Hutchison's stake or getting a good price to sell out completely.
Shetty believes Essar is ready to get a good price and get out. "I don't think they are serious about staying in the telecom business," he said.
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