The deal that the Essar group has extracted from Hutchison and Vodafone is a testimony to its bargaining power. The interesting question is: does the manner in which the Ruias played hardball with two global companies offer any lessons to other Indian companies which seek to exit joint ventures?
The Essar group has got a neat $373.5 million from Hutchison for “cooperation” in the sale of its telecom holdings here to Vodafone. And there’s more. Essar has also got itself an insurance policy. It can exit the new joint venture at a fixed price through a put option, though only in the fourth year after Vodafone takes control. Breakingviews, a content partner for this newspaper, uses the Black-Scholes formula to estimate the value of this option: $860 million.
The way Essar earned a fat “India premium” is a lesson, for both game theorists and other Indian companies taking part in a bidding war.