Mobile phone giant Vodafone, which is in the race for buying the 67 per cent stake in India's fourth-biggest mobile player Hutchison Essar, while being pitted against Reliance in the $20 billion bid battle, has said that it won't overpay.
The statement is a bid to pacify the analysts who have expressed their concern that the company might overpay to go for buying three-fourth stake in Hutch.
Although funding is not regarded as an issue for Vodafone, which is expected to pay all-cash if successful, analysts are concerned that the group might be dragged into paying a hefty premium for the buyout, reported The Times.
The mobile operator, which is facing mounting investor concern about over-exuberance in a heated race, vowed not to breach the "strict financial criteria" recently introduced by Arun its chief executive Sarin.
Its defence came as the battle for the Indian operator intensified with an alliance of four of the world's biggest buyout groups behind Reliance, one of Vodafone's rivals. Apax, KKR, Carlyle and Blackstone are understood to be close to joining forces to back Reliance, India's second-largest mobile operator, in its efforts to secure Hutchison Essar.
"Any acquisition would fit with our published financial mergers and acquisition criteria," the paper quoted a Vodafone spokesman as saying.
As the battle for Hutchison's 67 per cent stake in the venture has hotted up and more deep-pocketed rivals such as the billionaire Hinduja brothers have entered the fray so the price for the asset has soared. Analysts now put an enterprise value on the entire group, including debt, of about $20 billion. Both Vodafone and Essar - the 33 per cent joint venture holder - have tabled formal preliminary offers.
In a bid to pacify the analysts, Sarin had recently made public the guidelines about the group's share-price performance under him.
Richard Marwood, a fund manager at AXA, which holds just under 1 per cent of the stock, said that although it was reasonable for Vodafone to examine such opportunities, he did not want it to return to the strategic, footprint-building deals of its old days. "We do not want them to pursue it at all costs. If it cannot make the numbers stack up, then it should walk away," he said.
Analysts at JPMorgan said preliminary calculations suggested that Vodafone's strict mergers and acquisitions criteria "might be stretched". Their comments followed a warning earlier in the week from State Street, a key investor in Vodafone.
Sarin, who is leading the Vodafone negotiations, had his reputation seriously damaged by a similar frenzied auction in 2004 - the 41 billion dollars AT&T Wireless battle in the US. Vodafone's bid failed and Sarin was criticised for having a lack of communication with the City.