Indian Cabinet Approves Vodafone Plc's Takeover Of Indian Unit; UK-Based Company To Buy Out Shareholders For $1.6B

The Indian government on Thursday gave its approval to Vodafone PLC's (NASDAQ:VOD) proposal to buy out minority shareholders in its Indian arm, and raise its stake in Vodafone India to 100 percent for $1.6 billion. This is the first instance of a foreign telecom company getting full control of its India operations and the single-largest investment in the telecom sector in India.

The Foreign Investment Promotion Board had given its approval for the transaction in December but a cabinet approval was needed to finalize the deal. Vodafone had applied to raise its stake to 100 percent following the federal government's directive to the telecom sector to allow foreign companies to fully own Indian counterparts.

"Our emerging market businesses are growing strongly, supported by consistent execution and accelerating demand for data," Vodafone CEO Vittorio Colao had said while announcing third-quarter earnings Thursday, adding: “India is becoming one of our top four companies; it will be very quickly one of our top two.”

Vodafone, the world’s second-largest telecom company, entered India in 2007 by acquiring Hutchinson Whampoa’s cellular assets for $1.1 billion. After eight years of operations in the country and holding about 84.5 percent stake directly and indirectly, it reported an 8.8 percent increase in its subscriber base for the December quarter to 160.4 million. It attributed this addition to an increase in mobile Internet users and a data usage increase of 117 percent. Over the past six years, the company has invested more than $8.99 billion and has increased its coverage circles to 23 from 16.

“To us, it is not about the numbers but to be able to show steady growth, which we have done. We started our operations in India in 2007. Since then we have grown from a subscriber base of 25 million to close to 160 million with a rural customer base of 83.2 million. As per our H1 FY14 figures, we have the largest post-paid base of 9.6 million. These achievements, in a mere six years, are commendable,” Martin Pieters, managing director and CEO of Vodafone India, told the Hindu Business Line, a local business newspaper.

But there are other challenges to be overcome in the market for Vodafone, such as a transfer-pricing tax dispute worth $1.36 billion involving its Indian unit, which will be presented to the income tax appellate tribunal.

Meanwhile, the parent company, which is facing headwinds in Europe, reported a marginal decline of 3.6 percent in revenue for the December quarter to 11 billion pounds ($18 billion) while service revenue for the company fell 3.3 percent to 9.86 billion pounds.