Essar asks Madras HC to junk Vodafone objection to its reverse merger

Fresh developments have taken place in the legal battle between the Essar Group and UK telecom giant Vodafone on the proposed reverse merger of Essar Telecom Holdings Pvt Ltd (ETHPL) into listed entity Indian Securities (ISL).

Essar has filed its argument at the high court here against Vodafone’s allegation that the company rigged the share price of ISL to get a better valuation for its 33 per cent stake in Vodafone Essar, a joint venture of Essar Communication Holdings Ltd and the Vodafone Group.

ETHPL holds 11 per cent stake in Vodafone Essar, while the remaining 22 per cent is held through Essar Telecom. Vodafone owns the rest. Essar has a put option to sell its entire 33 per cent stake at $5 billion to Vodafone by May. It can also sell less than 33 per cent, but at a fair market price to be determined by both sides.

Vodafone International Holdings filed a petition in January against the proposed reverse merger of ETHPL into ISL, citing diverse reasons, including one of unfairly seeking to influence the fair market value of the put option mentioned earlier. It also wrote to the Bombay Stock Exchange and the Securities and Exchange Board of India on the objections to the reverse listing and asked for the matter to be investigated.

Essar has said the allegations by Vodofone of price rigging in ISL were “utterly absurd and baseless and Vodafone has committed a breach of the shareholders’ term sheet”. It has denied that the scheme did not represent the true reflection of the assets of ISL, as was alleged. Or that the fundamental premise of the valuation was flawed or misleading. “It is pertinent to note that the public shareholders of ISL would actually benefit from the scheme, as the promoters’ shareholding post the sanction of the scheme would get restricted to 75 per cent and the balance would be settled by issue of redeemable preference shares for a value of Rs 308 crore,” it has said.