Essar Group Claims Vodafone Essar Stake Worth More Than $5 Billion

The Essar Group has restated its belief that its 33% stake in Vodafone Essar Ltd is worth more than the US$5 billion that Vodafone offered it under the terms of the put-option between the two companies.


Vodafone has lost a bid to block the merger of two Essar holding companies that held the stakes in Vodafone Essar as that could have resulted in a revaluation of the stake at a higher price.


Under the proposals, Essar Group was to merge Essar Telecommunications Holdings Private Limited (ETHPL), which owns 11 percent stake in the mobile network, with another listed firm India Securities Limited (ISL) and thus its share price could imply an indirect valuation of the stake.


The put-option between the two companies allowed for a minimum price of US$5 billion, or the fair market valuation, whichever was higher. If the merger of the two Essar holding companies had been blocked, there would not be a market valuation to compare with.


"We have always believed that the fair market value of Vodafone Essar is higher than the underwritten value, and this is especially so in light of the recent stellar performance of the company," an Essar spokesperson told local media.


The move is however unlikely to affect the transaction as it had been announced before the holding company merger was authorised.


"Essar had two options: sell their entire stake for $5 billion as per the earlier agreement, or appoint an independent entity to arrive at a fair market valuation. That they choose the underwritten floor price proves they could not get a higher valuation (than $5 billion)," Vodafone's CEO, Vittorio Colao told the Economic Times newspaper.


Technically, Vodafone and the Essar group own 66:33 of Vodafone Essar Limited (VEL), a holding company that owns 75.35% of the mobile network itself. The rest of the mobile network is owned by Telecom In­vestment India (19.54%) and Omega (5.11%).


On the web: Economic Times