An [un]done deal?

8 April 2011 By Una Galani Follow @ugalani

The UK group’s partner in its Indian venture disputes the valuation of its 33 pct stake it’s a nasty surprise for Vodafone which last week assumed Essar had agreed a $5 bln exit and won applause cleaning up its portfolio. This messy dispute makes both sides look bad.

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Essar is seeking $600 million to $700 million more from UKbased Vodafone for the 33 percent holding it owns in their Indian joint venture, according to a person familiar with the situation. Vodafone said last month it would buy out its partner Essar in a deal worth $5 billion.

In March the UK operator said that Essar had exercised a put option over a 22 percent stake in the joint venture and that, following the move, Vodafone had exercised a call option over an 11 percent stake held by Essar.

When Vodafone acquired a 67 percent stake in Vodafone Essar for $11.1 billion in 2007, it gave Essar two put options over the 33 percent stake. The first allowed Essar to sell the entire stake to Vodafone for $5 billion. The second allowed Essar to sell between $1 billion and $5 billion worth of Vodafone Essar shares at a "fair market value".

Earlier this year, Essar pushed a plan to inject an 11 percent stake in the joint venture into Indian Securities (ISL), a listed company it controls. It argued that this would reveal its true value. Essar did not make any official comment when Vodafone announced it had exercised the option.

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