– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Hugo Dixon
LONDON (Reuters Breakingviews) – Vodafone has won the first round in its war with Essar. The UK group’s partner in its Indian mobile venture is downplaying a plan to inject its stake into an illiquid shell – a move which could have artificially inflated the stake’s value. Although the saga could have more twists, the most likely conclusion is that Vodafone will pay $5 billion to buy out Essar completely.
Vodafone can feel pleased that it has thrown a spanner into Essar’s plan to pop part of its 33 percent stake in Vodafone Essar into Indian Securities, the listed shell. If
that had led to an artificially inflated value, Essar could have tried to use it as the basis for squeezing more money out of the UK group when its put options over the stake fall due in May.
Although Essar says it is still pursuing the plan, management accepts that Vodafone’s tactics mean it will no longer be able to complete the move before the May deadline. It will either have to take the fair value as determined by investment banks – or sell the entire stake for $5 billion, a price fixed four years ago when the Indian mobile market was less cut-throat.