Vodafone takes the Essar out of Vodafone Essar
17 July 2011 |
Vodafone has acquired Essar’s 33% stake in Vodafone Essar for $5.46 billion in a deal that ends a four-year relationship rigged with controversy and clashes.
The move gives the UK-based operator a 74% majority shareholding in the venture. Worth $5.46 billion, the price includes an $880 million tax payment to the government, which both Essar and Vodafone believe is not due. If overturned, this payment will be returned back to Essar.
Vodafone is not unfamiliar to tax disputes with the Indian government, and is still fighting a $2.5 billion bill over the 67% stake acquisition of Hutchinson Essar in 2007.
The Vodafone brand, however, has proved hugely popular in India, shown by the joint ventures 140 million subscribers. Indeed, much of the friction between the two companies has stemmed from accusations by Essar that Vodafone has been trying to force it out of the market after it openly declared it take a majority stake in the joint venture in March.
The operator gave Essar the option to exit in May for $5 billion, which it rejected, and local media reports Essar is still not entirely satisfied with the price it eventually received.
It becomes another chapter in the internal restructuring exercise. Vodafone is hoping to create a streamlined organisation and this will help to tidy up its ownership structure in India, said Emeka Obiodu, senior analyst of telco strategy practice at Ovum.
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