Vodafone reserves right to terminate India acquisition

Vodafone Group PLC has reserved the right to terminate its agreement with Hutchison Telecommunications International Ltd. (HTIL) if a “prohibition” comes in the way of its US$11.1 billion acquisition of a controlling stake in Hutchison Essar Ltd., an Indian mobile services company.

In a filing to the Hong Kong stock exchange, HTIL said the agreement between Vodafone and HTIL provides for “certain termination rights arising as a result of circumstances tied to the existence of a prohibition.” Although it does not specify what kind of prohibitions could arise, a lawsuit or other litigation relating to the merger could be interpreted as such.

India’s Essar Group, which holds 33 percent of the equity in Hutchison Essar, is said to be unhappy with some of the terms of the deal, particularly Vodafone’s plans to take Hutchison Essar into an infrastructure sharing arrangement with Bharti Airtel Ltd., another Indian mobile services provider.

Essar, which also claims the right to first refusal for HTIL’s sale of equity in Hutchison Essar, may also move Indian courts, according to informed sources.

HTIL entered into an agreement Sunday to sell to Vodafone subsidiary, Vodafone International Holdings B.V., its entire direct and indirect equity and loan interests, held through subsidiaries, in Hutchison Essar. Vodafone announced that the transaction would give it an economic interest of 67 percent in the Indian company, in exchange for $11.1 billion in cash and assumption of $2 billion in debt.

In its filing, HTIL said that the transaction is to be completed on April 2, or the sixth business day after conditions such as approval by India’s Foreign Investment Promotion Board (FIPB) have been satisfied or waived.

HTIL and Vodafone were not immediately available for comment.

Vodafone CEO Arun Sarin is in India Wednesday to meet with Indian government officials and also possibly executives of the Essar Group. Vodafone has offered to buy the Essar Group’s stake in Hutchison Essar, though Sarin said in a conference call Sunday that he would prefer if they stayed on as partners. Sarin also said Wednesday in Delhi that Essar does not have right of first refusal on the deal.

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