Mergers & acquisitions

Essar Offers $11B for Hutch Buyout

The race for Hutchison Essar has intensified as Vodafone Group plc (NYSE: VOD) and Reliance Communications Ltd. (RCom) have officially entered the fray, while minority shareholder Essar Teleholdings has reportedly offered to buy out its joint venture partner.

Essar has offered $11 billion for Hutchison Telecommunications International Ltd. (NYSE: HTX)'s 67 percent stake in the mobile operator -- a move that will complicate matters for Vodafone and Reliance, which have both confirmed their interest in acquiring the carrier. (See Hutchison Courts Suitors, Vodafone Confirms Interest, and Reliance Mulls Hutch Bid.) Essar's bid essentially values the carrier at $16.5 billion.

According to Vodafone's statement: "Such a transaction would be consistent with its stated strategy of seeking selective acquisition opportunities in developing markets."

The Financial Times reports Vodafone has made an offer of between $17 billion and $18 billion for the company, but foreign investment rules will prevent it from holding more than a 74 percent stake.

According to the Times of India, Essar has approached the U.K.-based carrier with a proposal that would see Vodafone taking over Hutchison Telecom's stake, and Essar diluting its share through an IPO after a year. Hutchison Essar’s previous plans to go public were derailed by a disagreement between its two owners. (See Hutch Essar Expands, Scraps IPO.)

HTIL's 67 percent shareholding includes a 12.3 percent interest held by Asim Ghosh, Hutchison Essar's managing director, and Analjit Singh, chairman of health care and insurance company Max India. The company, which has indicated it will not accept less than $14 billion, is said to be in talks with Essar over what to with that 12.3 percent.

Reliance, India’s second largest operator, has teamed with a group of private equity firms including The Blackstone Group , Citigroup , and Kohlberg Kravis Roberts & Co. (KKR) to put in a counterbid for the carrier. (See Vodafone Sparks Bidding War Over Hutch.) Chairman Anil Ambani told a press conference yesterday that the potential acquisition would make a good fit with its GSM strategy, as the company moves away from using CDMA technology. (See Reliance Plans $7B GSM Build-Out and Reliance Dabbling With Dual Networks.)

A combination of the two carriers would give Reliance over 50 million subscribers and a commanding 35 percent share of the world's fastest growing telecom market, well ahead of current market leader Bharti Airtel Ltd. (Mumbai: BHARTIARTL) at 24 percent. Observers are already looking ahead to suggest that Bharti could respond by acquiring a smaller carrier such as Idea Cellular Ltd. or Spice Telecom in an effort to catch up.

That prospect could also give Reliance the advantage in bidding, since it could offer HTIL a stake in the merged company, allowing it to retain a presence in India. The Hong Kong-based company has been quick to point out that the India operation accounts for more than 40 percent of its revenues and four fifths of its operating income.

HTIL's stock price has climbed 12 percent since speculation over a sale began earlier this month.

— Nicole Willing, Reporter, Light Reading

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