Ruias differ over Hutch-Essar strategy?

Rex Mathew
29 December 2006

The Ruia brothers of Essar group, Shashi and Ravi Ruia, have different views on the strategy their group should adopt in the battle for control of Hutch-Essar — according to a report in The Times of London. While Shashi Ruia, chairman of the group, wants to exit the telecom business by selling out to the highest bidder, younger brother Ravi Ruia is in favour of holding on to Essar''s stake and possibly acquiring the remaining 67 per cent from Hutchison.

Selling the stake would fetch the Ruias nearly $6 billion at the latest indicated enterprise value of $21 billion for Hutch-Essar. Such a large inflow would help the group strengthen and expand its other businesses like steel and oil exploration and refining. The group has to expand its other businesses as their present capacities are not sizeable enough to make them formidable players and hence leave them vulnerable to competitive pressures and industry downturns.

However, acquiring the whole of Hutch-Essar and selling it off at a later date also makes sense since India has emerged the fastest growing telecom market and valuations of companies in the sector are expected to improve in future. As long as the Essar group can retain Hutch-Essar''s market standing and premium brand image, it can expect to extract a better realisation one or two years down the line.

Meanwhile, the Essar group is understood to have made an initial bid of $11 billion for Hutchison's 67 per cent stake in Hutch-Essar — according to reports in the Financial Times. That values Hutch-Essar at around $16.5 billion — way below the indicated minimum valuation of $21 billion by Hutchison.

Essar group holds a right of first refusal if Hutchison sells its stake in Hutch-Essar. However, there are rumours that this right would not be applicable if Hutchison sells its stake to a foreign buyer. Bharti Airtel chairman Sunil Mittal also seemed to indicate this when he said no domestic player can acquire Hutchison's stake without the consent of the Essar group.

The Financial Times also reported that Vodafone has submitted an initial bid, valuing Hutch-Essar in the $17 billion - $18 billion range. Vodafone has yet to confirm these reports. Some of the key shareholders of Vodafone are unhappy about the high valuation, according to a report in UK''s The Times.