Vodafone Moves Closer to Clinching Indian Deal

Vodafone's chances of buying India's Hutchison Essar, the country's fourth largest mobile phone operator, brightened yesterday after it emerged that two of the carrier's major shareholders were prepared to split the company three ways.

The proposed deal would divide the operator between the British firm, India's Essar group and Analjit Singh, chairman of Indian private healthcare company Max, who owns 8.75% of the operator.

Hong Kong based Hutchison Whampoa has been approached by various parties to sell some or all of its 67% stake in Hutchison Essar, the mobile service provider. The operator has 22m subscribers and is part-owned by India's Essar group. Hutchison has made it clear it is prepared to sell out - and a number of bidders have emerged. Vodafone has valued the company at $17bn (£8.6bn), a shade larger than the amount mooted by Essar to buy the 67% stake in the operator that it does not own.

Mr Singh, according to the Economic Times newspaper, would if "the terms and conditions were attractive" be prepared to play marriage broker between Essar and Vodafone.

The proposed deal would see Vodafone, the world's largest mobile operator by revenue, emerge as the majority shareholder. Under Indian law, foreign shareholdings in telecoms firms cannot exceed 74%, limiting Vodafone to 52% with Essar's foreign subsidiary controlling another 22%. The remaining stake would be parked with Mr Singh.

This would require the co-operation of Hutchison, which appears to have fallen out with Essar and the Ruia family, who control the group. Hutchison has already questioned Essar's claims that it has first call on the majority stake. Sources close to Hutchison told reporters that "crucial conditions" that would give a first right of refusal to the Essar group to buy the stake had not been met.

In effect Hutchison wants to be free to negotiate the best price for the sale of its stake without recourse to the Essar group's controlling family, the Ruias.

Waiting in the wings is Reliance Communications, India's second-largest mobile operator which is controlled by billionaire Anil Ambani. The company is believed to have submitted a bid which puts a value of at least $17bn on Hutchison Essar.