Vodafone, Essar clash over JV buyout

Dylan Bushell-Embling
24 Jan 2011

Vodafone and Indian partner Essar Group are at loggerheads over the latter's plan to exit the Vodafone Essar joint venture.

The controversy stems over Essar's plan to merge two business units including Essar Telecom Holding, which has an 11% stake in the JV.

Vodafone has objected to the merger, stating it could artificially inflate the valuation of the venture and thus affect the price it pays for a buyout the operator is reportedly planning.

The company claims Essar did not disclose the merger to shareholders, and that details of the plan had been kept from Indian corporate regulators.

But Essar on Friday said the merger is fully compliant with Indian financial regulations and laws, and that Vodafone has no legal capacity to protest.

Essar claims the true purpose of the objection is to prevent Essar from discerning the fair market value of the venture, and that “Vodafone is attempting to force Essar out of the company and own 100% of [it] at an artificially depressed value.”

Under the terms of the companies' agreement, Essar can either sell its entire stake to Vodafone for $5 billion, or part of its holding at market value.

Vodafone is thought to have enlisted Vodafone Essar minority shareholder Analjit Singh to join in a takeover bid, in order to comply with Indian laws preventing foreign ownership of more than 74% of a mobile operator.

Essar accused Vodafone of holding it back from floating its stake in the JV via an IPO last year. But Times of India todayreported that Vodafone insists it has no objection to its partner pursuing a public offering.

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