Vodafone Confirms Considering Hutchison Essar Bid
LONDON -(Dow Jones)- Vodafone Group says it was considering taking a controlling interest in Indian mobile phone operator Hutchison Essar as it continues to seek growth in emerging markets, a move which may spark a bidding war.
However, according to press reports Friday Vodafone's pursual of India's fourth largest mobile phone operator, would be dependent on it managing to avoid a one-year non-competition clause with its current India mobile phone partner Bharti Airtel, in which it holds a 10% stake.
The world's largest mobile phone operator by revenue is looking to offset slowing European customer subscription rates by gaining a stronger grip on India's mobile phone market, which analysts estimate is adding 6.6 million new subscribers a month.
However, according to a person close to the situation, India's second largest mobile phone operator Reliance Communications and private equity group Blackstone have been in negotiations for the past month to acquire a 100% stake in Hutchison Essar. Vodafone's interest in the operator could now spark a bidding war.
Vodafone shares at 0843 GMT were down 0.5 pence, or 0.3%, at 143.3 pence in a broadly higher London market.
"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 Hutch Essar," said the company in a statement. "Such a transaction would be consistent with its stated strategy of seeking selective acquisition opportunities in developing markets."
The company added: "The process is at an early stage and may or may not lead to a transaction."
For Vodafone to win a bid it will need to negotiate with Hutchison Essar shareholders, Hutchison Telecom International which has a 67% stake and oil and gas conglomerate Essar, which holds 33% of shares.
It is believed that Vodafone will also have to negotiate with owners of India's largest mobile phone operator Bharti Airtel, which it bought a $1.5bn stake in.
When Vodafone signed the deal with Bharti owners - Bharti Enterprises and Singapore Telecommunications - in October 2005 it agreed to a one-year non-competition clause should it wish to exit the contract.
Morten Singleton, analyst at German investment bank WestLB, said a bid by Vodafone could see it paying over the odds for the Indian operator.
"It's dangerous because they will be bidding against someone that can afford to push the price up," he said.
Singleton added that Reliance Communications would be able to factor in "synergies and cost savings" from merging the two operators into its bid, something Vodafone, with only a minority stake, will be unable to do.
According to Bear Stearns, Vodafone has invested strongly in emerging rapid growth markets recently. In the past two years, the Newbury, England-based phone operator has spent $6.5 billion on assets in Turkey, South Africa, India, Romania and Czech Republic.
Bear Stearns estimates that if Vodafone had not made these investments it would have report only a 1.9% growth in the year to March 2007, rather than the 7.4% Bear Stearns forecasts.
Company Web site: http://www.vodafone.com
-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; dan.thomas@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 22nd December 2006
