Hutchison Essar has entered into an agreement to acquire BPL Mobile Communications (BPL Mobile's Mumbai circle) and BPL Mobile Cellular (the state circles of Kerala, Tamil Nadu and Maharashtra). It also announced that it had entered into a conditional agreement to acquire Essar Spacetel, an Essar group company that has applied for licences in seven circles - J&K, Bihar, Orissa, Madhya Pradesh, Assam, Himachal Pradesh and the North-East. These areas are presently not serviced by Hutchison Essar.

The deal will be a cash transaction. BPL Mobile has been valued at $1.15 billion. The funds are being raised through a mix of equity and debt.
"The equity will be raised through a rights issue of $400 million while the balance $800 million will comprise of debt," said Essar Teleholdings CEO Vikas Saraf. The acquisition clears the way for the initial public offer by Hutchison Essar. "We are looking at an IPO in the first quarter of next year," said Mr Saraf.

The acquisition will not result in any change in shareholding. Hutch will continue to have close to a 53% stake (direct and indirect holding), while Essar will continue to have over 30%. The balance stakes are held by Kotak group (8%) and the Hindujas and Max (together 8%). "The cost of these acquisitions will be funded by a combination of shareholder funding and external bank borrowings of Hutch Essar," a company release said.

Essar had earlier acquired the holding company, BPL Communications after protracted negotiations with the promoters and other foreign stakeholders. It had said at the time that BPL would eventually be transferred to Hutchison Essar. Hutchison has signed the agreement to acquire the operating companies today.

While BPL Cellular will continue to operate as a separate entity, the Mumbai operations will be merged into Hutchison. However, the acquisition of BPL Mumbai and Essar Spacetel is subject to regulatory approvals and other conditions.