Vodafone, Essar to Jointly Run Indian Mobile Phone Company

Vodafone and India's Essar group have agreed to jointly manage a leading Indian mobile phone company in which Vodafone is buying a controlling stake, a company official said.

Vodafone Chief Executive Arun Sarin is expected to formally announce the deal in New Delhi on Thursday, said an official familiar with the development. The official, who spoke on Wednesday, did not want to be named because of the deal's confidentiality ahead of the formal announcement.

Last month, Britain-based Vodafone won a bid to buy a controlling 67% stake in Hutchison Essar -- a joint venture between Hong Kong-based Hutchison Telecommunications International and the Essar group.

The stake that Vodafone, the world's largest mobile phone company, is buying for $11.1 billion in cash comprises the 52% equity held by Hutchison Telecom and a combined 15% stake owned by two individual Indian investors.

The remaining 33% equity in the company is held by the Essar group, which has said it has no immediate plan to exit the business.

The deal with Essar is important for Vodafone to complete the acquisition because Indian laws do not allow more than 74% foreign equity in telecommunications. Vodafone's bid to acquire Hutchison's stake is also pending for approval by the government.

Under the deal between Vodafone and Essar, Hutchison Essar will be renamed Vodafone Essar and will sell its products and services using the Vodafone brand, the official said.

Vodafone will take operational control of the company, while Essar will have substantial representation on its board, he said.

The current chief executive officer of Hutchison Essar, Asim Ghosh, will remain in his position, the official said.

Essar officials declined to comment while Vodafone officials could not be immediately reached for comment.

With European markets fully saturated, Vodafone sees India as a key area for potential growth. In recent months, India has emerged as the world's fastest growing mobile phone market, adding more than 5 million new connections every month.

Hutchison Essar is the country's fourth-largest mobile phone operator with about 24 million customers and 16% of the market.

In the next few years, Vodafone plans to invest $2 billion in India over and above what it pays to acquire Hutchison Essar. It has also offered to buy the stake held by Essar.