Vodafone buys out Essar


Ending months of debates and troubled a joint venture in
India, Vodafone Plc has finally bought out its joint venture partner Essar’s 33
percent stake in Vodafone Essar for $5.46 billon.


This amount is $0.46 billion more than the earlier agreed
price in May 2011, taking into account Vodafone’s tax liability of $880
million, which will be jointly shared by Vodafone who will pay $460 million,
and Essar which has agreed to pay $420 million towards the same.


The transfer of shares from Essar to Vodafone was completed in two tranches on June 1 and July 1. The payment of $1.26
billion for the remaining 11 percent stake held by Essar’s Indian entity will
be made by 15 February 2012. This deal allows Vodafone to operate independently
in India, with a majority stakeholding of over 74 percent currently. According
to the Indian government rules, Vodafone will now have to look for an Indian
buyer for the remaining stock.


On March 31, Vodafone had announced its intention to
acquire Indian partner Essar’s 33 percent stake for $5 billion, after the
latter added a put option for sellout its stake for the said amount.


In India, Vodafone Essar reported a total of over 2 lakh 3G subscribers in March 2011, barely a month
after launching 3G services in India, and said that it is adding 35,000 new
customers on a daily basis.


The operator was also the biggest gainer from MNP, adding
over 50,000 customers as of March 2011, to be replaced by Idea only recently.
India also accounted for 80 percent of the 12.9 million customers that Vodafone
added globally from January-March 2011, touching 136.9 million subscribers
during the year, up by 39 percent.


Vodafone and Essar initially crossed paths in 2007
when Vodafone
purchased a 67 percent stake in Hutchison Whampoa’s Indian telecoms business,
where Essar already had a share.


This agreement allowed Vodafone to enter the Indian
market, but in recent times this deal has caused upheavals in the Vodafone – Essar
partnership, because of Vodafone’s non-payment of entry taxes to the Indian
government of about $2 billion.


Vodafone has said that the July 2 deal, will not deter it
from fighting against payment of the $2 billion in taxes, which it feels is
unfair, considering the fact that at the time of acquiring the Hutchison stake,
the latter was registered in Mauritius.


However, the Indian government feels that since the deal
was made for Vodafone India, taxes to the Indian government are liable.
In the current deal, Vodafone has agreed to pay taxes in India on a deal
involving companies that are registered outside the country.


In May this year, there was also some talk brewing about
wanting to start an IPO in India, as it did for Vodacom in Africa. Post this
development, Vodafone may soon take this forward.


By Beryl M