Essar to exit Vodafone JV for $5.46 billion, deal value up by $460 mn

The Essar Group on Friday decided to sell its entire 33 per cent stake in the country’s second-largest GSM mobile operator Vodafone-Essar to the Vodafone Group for $5.46 billion. Essar will also pay a withholding tax of $880 million to the government, under protest. The deal will be completed by February 15, 2012.

The amount is higher than the $5 billion that Essar was entitled to get by selling its entire stake to Vodafone before May 2011 as per their agreement in 2007. On March 31, when the two parties had announced the sale as per their respective put and call options, the value worked out to be $5 billion.

However, Essar later invoked a clause from the Foreign Exchange Management Act guidelines on FDI governing share sales between a non-resident and resident entity where the Indian company happens to be an unlisted entity. In such cases, the valuation is to be determined by a Sebi-registered category-1 merchant banker or a chartered accountant as per the discounted free cash flow method. The 11 per cent held by Essar’s India Securities Ltd (ISL) will be sold at $1.26 billion against the earlier $1.20 billion. The balance 22 per cent held by Essar Communications (Mauritius) will be sold for $4.20 billion instead of the earlier $3.80 billion. After deducting the withholding tax of $880 million, the amount will work out to $3.32 billion.