Wednesday, February 2, 2011

Vodafone, Essar name banks for valuation






Source :MUMBAI: TNN, Feb 2, 2011, 12.46am IST


With fissures developing between UK-based Vodafone and its Indian partner Essar Group in their joint venture -Vodafone-Essar-over the telecom company's valuation, both have appointed separate investment bankers to value the business. While Vodafone has appointed Goldman Sachs to value Essar's 33% stake in the joint venture, the Ruias are said to have brought on board Standard Chartered.

The two partners have been caught in a spat over the valuation of Essar's stake in the JV. The Indian group has proposed to reverse merge Essar Telecom Holdings (ETHL) into its listed group firm, India Securities. ETHL holds 11% of the Essar stake in the joint venture. This is intended to lead to price discovery of its stake in Vodafone Essar, which Vodafone has objected to and has filed an appeal against it in the Madras HC.

Vodafone said it was concerned that such a move could distort the valuation of the JV and that the value of India Securities could be misinterpreted as a fair market value of Vodafone Essar.

Essar, on the other hand, has said categorically that it is going ahead with the reverse merger despite some reports stating that it has shelved its plans. "There is no change in our plans to merge ETHL with India Securities. As we have stated before, the investment banks are free to choose whether or not to consider the listed value of ISL in their fair value determination," an Essar group spokesperson said. Vodafone has a 67% stake in Vodafone Essar, the third largest mobile service provider in India.

The deadline for the put option expires for Essar on May 8, as per an agreement the two companies had struck in 2007. Under the put option, if Essar sells it's 33% stake to Vodafone, it will get a guaranteed $5 billion but if it decides to go for a part sale-the value will be determined by investment banks from both the companies. In case the two companies do not agree to the valuation, a third bank will be mandated to arrive at a fair value.

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