Vodafone sells Polkomtel stake and settles up with Essar

Significant transactions on both sides of the globe have been finalised by Vodafone, with the company confirming that it has settled its dispute with Essar in India as well as selling its stake in Polish operator Polkomtel.

Vodafone will gain a 74% stake in Vodafone Essar by acquiring a combined 33% holding from several Essar companies, all of which have relinquished their board seats in the joint venture. The final settlement of US$5.46 billion exceeds the original outline by US$460 million.

All parties involved have agreed that all outstanding claims between them are terminated, and that all future claims have been renounced. They have also agreed to cooperate fully in seeking all regulatory approvals necessary for the completion of these transactions.

The settlement marks the end of a four-year partnership between Vodafone and Essar in India, during which the joint venture has accrued almost 140 million subscribers, becoming the third largest market player.

The final settlement accounts for US$880 million for taxes owed to the Indian authorities – a charge disputed by both Vodafone and Essar. Vodafone has stated: “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”.

Following regulatory approval and subsequent closing of these transactions, Vodafone will own 74% of the joint venture directly via its subsidiaries. The remaining 26% of VEL will be majority-owned and controlled by Indian shareholders.

On the other side of the world, Vodafone has agreed to sell its entire 24.4% interest in Polkomtel for a cash consideration of approximately €920 million (£815 million/ PLN 3.7bn 2) before tax and transaction costs. The interest was purchased by to Spartan Capital Holdings SP. z o.o, an investment vehicle controlled by Polish businessman Zygmunt Solorz-Zak, who was widely tipped as a potential buyer for the operator.

The disposal underpins Vodafone’s strategy to realise value from its non-controlled assets. Net proceeds from the sale of Vodafone’s stake will be used to reduce its net debt.

This transaction is part of an agreement between all of the shareholders of Polkomtel to sell their stakes to Spartan Capital Holdings. The total consideration implies an enterprise value of €4.5bn (£4.0bn / PLN 18.1bn 2) and represents a multiple of 6.4x EBITDA for the year ended 31 December 2010. The transaction is subject to Polish competition authority approval and is expected to complete in the fourth calendar quarter of 2011.

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