The Vodafone group on Thursday said it would acquire 33 per cent stake of the Essar Group in its Indian telecom joint venture Vodafone Essar for $5 billion. Going ahead, Vodafone will have to look for a new Indian partner to remain compliant with the FDI norms in the telecom sector of a maximum stake of 74 per cent.
“The Vodafone Group announces that the Essar Group has exercised its underwritten the put option over 22 per cent of Vodafone Essar. Following the exercise by the Essar Group of its put option, Vodafone has exercised its call option over the remaining 11 per cent of Vodafone Essar owned by the Essar Group resulting in a total cash payment of $5 billion. The final settlement is anticipated to be not later than November,” the Vodafone Group said in a statement.
The call option allows an investor the right but not the obligation to buy a stock, bond, commodity or other instrument at a specified price within a specific time. On the other hand, the put option is an option contract giving the owner the right but not the obligation to sell a specified amount of an underlying security at a specified price within a specified time.
With this, the Essar Group will exit completely from the joint venture Vodafone Essar that has now over 13-crore subscribers across India. Vodafone had entered the Indian market in 2007 after buying the Hutchison's stake in the joint venture for over $11 billion and after that it had entered into an agreement with the Essar Group for a call and put option for its stake.
However, the two firms were locked in battle over the Essar Group's plan to list a firm that had part stake in the joint venture to find out the market value of its 33 per cent stake. However, this was opposed by Vodafone saying this might not give the true value of Vodafone's stake.
