Vodafone Group PLC has announced that it paid $5 billion to buy out Essar Group’s stake in Vodafone Essar. The final settlement for the same will be completed by November 2011, according to a statement from Vodafone. The statement mentioned that Essar Group had exercised its underwritten put option over 22% of Vodafone Essar, after which Vodafone has exercised its call option over the remaining 11%. The company’s published net debt figure already includes the $5 billion amount.
Essar group had a 33% stake in Vodafone Essar, while Vodafone owned 67%. With this buyoout, Vodafone will have 78% stake in the company, 4% more than the permitted foreign direct investment share. That means that Vodafone will have to sell the additional stake, in line with FDI norms, to an Indian partner.
The run up to this sale had its share of controversies. The Essar group had earlier decided to merge part of its 33% stake in Vodafone Essar into the listed Essar company India Securities to get the market value of its stake. Vodafone had objected to this move following which Essar had appointed two investment banks to determine a fair price for the stake. Essar had also alleged that Vodafone wanted to force it out of the JV.
Nikhil adds: It’ll be interesting to see what the Essar group does now – will it now invest the money in Loop Mobile, and maybe increase its stake in the venture, or exit the telecom business altogether? Remember that Loop Mobile has offered to surrender its 2G spectrum and license.