British telco Vodafone has agreed to pay US$5.46bn to buy out the stake of Essar Group in their JV, the mobile operator Vodafone Essar.
The US$5.46bn figure represents an increase of US$460m on the original transaction fee announced by Vodafone in…
British telco Vodafone has agreed to pay US$5.46bn to buy out the stake of Essar Group in their JV, the mobile operator Vodafone Essar.
The US$5.46bn figure represents an increase of US$460m on the original transaction fee announced by Vodafone in March.
The increase is due in part to Vodafone’s decision to pay withholding tax of US$0.88bn on the transaction.
In a joint statement today, Vodafone and Essar said: “Whilst Vodafone and Essar continue to believe that no tax is due on this transfer, it was viewed as prudent to pay withholding tax on a without prejudice basis.”
The acquisition involves Vodafone acquiring Essar’s 22% stake in the JV through a put option. The British telco has paid US$3.32bn for this stake in two instalments, one in June and one today.
A Vodafone spokesman told TelecomFinance that the US$3.32bn figure is lower than originally planned. Reports suggested that the original figure was approximately US$3.8bn.
Vodafone is also exercising a call option to acquire Essar’s other 11% stake for US$1.26bn. This payment will be made in February 2012.
Vodafone and Essar said that they expected that 1.35% of the shares in Vodafone Essar will be transferred to an Indian investor to ensure Vodafone still complied with India’s foreign direct investment (FDI) rules.
These FDI rules state that a foreign investor can own only 74% of an Indian telco. At the end of the transaction, Vodafone will hold 74% of Vodafone Essar directly through its subsidiaries.