Vodafone plans $13.5bn plus bid for Hutch-Essar

A British mobile phone operator, Vodafone Group Plc is reportedly considering a US$13.5-billion-plus offer for India's Hutchison Essar, nation’s fourth largest mobile phone operator, in order to expand its existence in the world's fastest growing cellular services market.

Newbury-based Vodafone's proposed bid of $13.5-$14 billion would likely trigger a bidding war with India's Reliance Communications Ltd, India's second-biggest mobile services firm and which is controlled by the Anil Ambani group.

In its attempt to buy the entire stake of Hutchison, the Reliance-Anil Dhirubhai Ambani Group (R-ADAG) is likely to raise its proposal by around $3 billion.

Hutchison Telecommunications International Ltd., a subsidiary of Hong Kong giant Hutchison Whampoa, and its associates own 67 percent equity in Hutchison Essar, while the Indian shipping, steel and oil group Essar holds the remainder.

Vodafone's board is due to meet today to discuss the proposal for India’s leading provider of wireless telecommunications services and planned to present it tomorrow in London to Canning Fok, managing director of Hutchison Whampoa, and Ravi Ruia, vice-chairman of Essar.

Vodafone’s move could include selling its 10 per cent equity stake in top mobile services firm Bharti Airtel Ltd, which it acquired for $1.5 billion last year.

Although, the Vodafone chief executive Arun Sarin has reportedly said that the firm is interested in "selective acquisitions" to broaden its reach outside Europe, but a Vodafone spokesman declined to comment on bid speculations.

The proposed offer price could value Hutchison Essar at a 24 per cent premium to Bharti, which has a market capitalization of $25.7 billion, while at $14 billion, analysts estimate Hutchison Essar's enterprise value Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) at 20.6 times year-to-March 2007 earnings, well above Bharti's 16.2 times.

As per the Macquarie Securities estimates, Hutchison Essar's enterprise value is at $13.7 billion, with an equity value of $12.18 billion.

With around 18 million customers and a 16 per cent market share, Hutchison Essar is India’s fourth-largest wireless operator behind Bharti's 21.5 per cent, Reliance's 20.4 per cent and state-run Bharat Sanchar Nigam's 16.5 per cent.

Shares in Vodafone slipped 2.25% to 143.75p today after the reports of company’s plan to acquire the Indian telecom group. Likewise, shares of Hutchison Telecom dropped 1.9 percent to close at HK$17.66 in Hong Kong trading.

On contrary, Hutchison Whampoa stock rose 0.5 percent to HK$77.15, and Reliance shares were up 2.6 percent at 459 rupees.