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Saturday, January 06, 2007

Hutchison Essar: PreEmption Rights

I’ve been reading a lot recently about whether or not Essar has pre-emption rights on Hutchison’s stake in the Indian JV.

The big question is why is Hutchison even bothered?

In the Financial Times this morning it seems that “someone” pointed a journalist in the direction of the relevant clause in the JV agreement which shows a foreign bidder does not need to worry about pre-emption rights.

If Hutchison wanted maximum value for the Indian operations then they would publish that Essar maybe has pre-emption rights and push the bids up until Essar can’t afford to match the price of the maximum bidder.

Do Hutchison really care who buys the Indian operations as long as they get maximum value?

However if they were thinking of selling off a bundle of assets, such as India, Indonesia and Vietnam in the same package, then pre-emption rights would be extremely important.

It would also be a nice way for a company such as Vodafone to side step all the noise about the price in India being beyond their internal acquisition criteria.

Vodafone can’t buy HTIL outright as Orascom definitely has pre-emption rights over a sale of a stake by Hutchison Whampoa, but they can buy assets leaving a cash rich shell with a couple of operating assets in say Hong Kong & Israel.

In fact, Vodafone did this before when they bought the Romanian and Czech assets from TIW.

I suspect the abacuses in Hong Kong are red-hot computing the various permutations.

I also suspect the cunning and guile of Sir John Bond is at work here.