Vodafone seals $5.46 bln deal to buy out Essar | india | Hindustan Times
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Vodafone seals $5.46 bln deal to buy out Essar

india Updated: Jul 01, 2011 21:41 IST

Vodafone said it has sealed a long-awaited deal to buy out its partner Essar from their Indian mobile joint venture for $5.46 billion, ending a highly fractious relationship.

The British company, which is the world's biggest mobile operator by revenue, will purchase the 33% stake owned by a collection of Essar companies, giving it a majority 74% shareholding in the venture.

The price includes an $880 million payment for taxes, which neither Vodafone nor Essar believe is due and will be returned to Essar if they are proved correct.

The deal is part of Vodafone's strategy to only own assets where it has control, and follows the sale of its stake in Polish operator Polkomtel on Thursday.

Analyst Andrew Hogley at Espirito Santo said the deal was in line with expectations once the tax payment was taken into account.

"The price is a little bit higher than we'd expected but we think that's because they've transferred some of the tax issues to Essar rather than deal with it themselves -- which, given their experience, is understandable," he said.

Vodafone is separately engaged in a prolonged $2.5 billion tax battle with Indian authorities.

Vodafone has grown rapidly in India, with the joint venture having almost 140 million subscribers, but it has been forced to take a charge of 2.3 billion pounds ($3.7 billion) due to fierce competition and escalating spectrum costs.

It also repeatedly clashed with Essar in the latter stages of their four-year partnership, as the Indian group accused the British firm of trying to force it out.

Vodafone said in March it would buy out Essar, but since then there has been wrangling over the details of the deal, which ratchets up its exposure to a mobile market that had proved challenging in spite of rapid growth.

Vodafone entered the Indian market in 2007 by taking a 67% controlling stake in Hutchison Whampoa Ltd's mobile business there, in which Essar had been a partner.

The deal gave Essar the option to sell its 33% stake for $5 billion by May 2011, or part of it at a market price.

Even once the two sides agreed on a deal, Indian newspaper reports suggested Essar was looking for more money to exit.

The remaining 26% in the joint venture is held mainly by Indian shareholders, Vodafone said. Shares in Vodafone closed 0.7% lower at 164.4 pence, slightly underperforming a 0.3% weaker European telecoms index.