Despite resistance from some directors, the board of British Vodafone Group Plc, the world's largest mobile phone service company, on Friday approved a management decision to bid for the India's fourth largest mobile phone operator Hutchison-Essar Ltd., potentially setting up a bidding war with Anil Ambani's Reliance Communications.
After Vodafone's chief executive officer (CEO) Arun Sarin led a pitch, the board approved a bid, but with a maximum value of $17 billion for the entire company, investment banking sources told Hindustan Times. A reliable source said HongKong-based Hutchison group, which controls 67 per cent in the joint venture, has asked interested parties to submit bids for the stakes by 6 p.m. GMT in London.
The Ruias, who control 33 per cent, are still mum on whether they would sell out.
Vodafone said in a statement that it was considering acquiring Hutch-Essar, while Bharti Airtel, Hutch's rival in which Vodafone owns around 10 per cent, said separately that Vodafone had informed it of its interest in acquiring Hutch.
"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," Vodafone told the London Stock Exchange.
Anil Ambani has roped in private equity firms Blackstone, The Carlyle Group, Texas Pacific Group and Kohlberg Kravis Roberts & Co (KKR), and clutch of foreign bank as lender to create a war chest of around $15 billion.
It is learnt that Bharti Airtel has given a waiver from a non-compete clause to Vodafone to bid for Hutchison-Essar as even after disposing of its stake in Bharti Airtel, Vodafone cannot operate in any circle for a minimum period of one year. As per the non-compete clause, the UK-based company cannot operate in the same circles where Bharti Airtel is functioning for one year from the date of ending the agreement between the two companies.
Any bid for Hutchison-Essar would be part of Vodafone’s stated strategy to offset slowing growth in its European businesses by buying assets in emerging markets. In fact, analysts say Sarin needs a face-saver after a series of aborted, failed or criticised deals.
On Thursday, an institutional investor cautioned that the emerging situation sounds like "a honeypot for investment bankers," reflecting worries that Vodafone could end up getting dragged into an expensive acquisition.
According to JP Morgan, “lack of synergies and political relationships both point to Vodafone having to pay a sizeable multiple if any bid is to be successful."
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