The Hindu Business Line : Hutchison offers $415 m to Essar as `sign-on bonus'

FINALISING THE DEAL: The Union Minister for Information and Technology, Mr Dayanidhi Maran, flanked by the CEO of Vodafone, Mr Arun Sarin (right), and the Vice-Chairman of Essar, Mr Ravi Ruia, in the Capital on Thursday. — Kamal Narang

New Delhi March 15 Even as Vodafone and the Essar group on Thursday announced an agreement to jointly manage Hutchison Essar, Hong Kong-based Hutchison Telecommunications International Ltd (HTIL) further sweetened the deal for the Ruias by offering $415 million as `sign-on bonus' in return for its cooperation in completing the deal between Hutch and Vodafone.

The two agreements are likely to put an end to all the differences that had crept up between Essar, Vodafone and Hutchison ever since the $11.1-billion deal was announced in February.

"Under the settlement agreement, Essar will take all reasonable steps to ensure completion of the transaction and will refrain from initiating any action that may inhibit or delay the completion of the transaction," HTIL said in a statement.

Essar has agreed to provide HTIL certain indemnities and waive any rights it may have in relation to the transaction, it added.

Earlier threat

The Ruias promoted Essar had earlier threatened to exercise its first right of refusal against the Hutch-Vodafone deal. HTIL had also filed caveats in Delhi and Mumbai High Courts fearing legal action by Essar. It has now agreed to offer Essar $373.5 million at the closing of the transaction with Vodafone and a further $41.5 million after fulfilment of certain conditions and not later than the second anniversary of the completion of the deal. HTIL did not elaborate further on the conditions relating to its payment of the additional $41.5 million to Essar.

In a separate agreement, Vodafone has allowed Essar certain liquidity rights including, an option to sell its 33 per cent shareholding in the newly christened Vodafone Essar to Vodafone for $5 billion between the third and fourth anniversaries of the completion of the deal.

Though the valuation given to Essar is lower than what Vodafone offered to HTIL for its controlling stake, Mr Ravi Ruia, Vice-Chairman of Essar, said that the option was only a security to the company as Essar was committed to stay invested in the cellular venture for a long term.

Essar also has an option to sell between $1 billion and $5 billion worth of shares to Vodafone at an independently appraised fair market trading value.

Rechristened entity

The cellular company, currently called Hutchison Essar has been renamed as Vodafone Essar. While Mr Ravi Ruia has been appointed as the Chairman, Mr Arun Sarin, CEO of Vodafone, will be the Vice-Chairman despite being the majority shareholder.

Mr Sarin said that the move was in line with Vodafone's tradition to give more importance to its local partner. He also said that the company would initially go to market under a dual brand strategy as Vodafone-Hutch for some time before introducing the standalone Vodafone brand.

Vodafone is aiming to be the number one operator in the country by 2010 with a market share of 20-25 per cent up from 16 per cent at present. "This was one of the toughest deals that I have completed as it was highly competitive and there were too many interested parties," said Mr Sarin.

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