The battle for acquiring a controlling stake in Hutch-Essar and the dispute between Hutchison Whampoa and the Essar group has taken a very interesting turn. If reports are to be believed, Hutchison may have found a way to make Essar Group's right of first refusal in Hutch-Essar ineffective.

The Wall Street Journal has reported that Hutchison has offered to sell its majority stake in Hutchison Telecommunications International (HTIL), which in turn holds a majority stake in Hutch-Essar, to potential bidders.

If the report is true, bidders like Vodafone and Reliance Communications have been offered an option to control Hutch-Essar indirectly through HTIL. Such an offer would considerably weaken the bargaining power of the Essar Group.

Though the Essar Group has publicly stated its interest in acquiring Hutch-Essar and has reportedly submitted a $14-billion bid, most industry observers believe that its real interest is to drive up the valuation and sell its 33-per cent stake at the best possible price.

Hutchison and Essar are currently involved in a dispute over the right of first refusal. While Essar maintains that its right covers all stake sales by Hutchison, the Hong Kong group contends that the right is applicable only in the case of a stake sale to any of the major domestic telecom companies.

Hutchison is believed to have informed potential buyers about its position and Essar is reportedly even considering a legal battle to settle the issue. While HTIL and associates like Analjit Singh of Max India and Hutch-Essar CEO Asim Ghosh control 67 per cent of Hutch-Essar, the Essar Group holds the remaining stake.

However, bidders like Vodafone and Reliance Communications would be very cautious while considering the offer to acquire a majority stake in HTIL. Even if such a deal materialises, the Essar Group would continue to hold its 33-per cent stake and the acquirer would have to continue to deal with a recalcitrant partner.

There is also the issue of minority shareholders in HTIL like Egyptian telecom company Orascom. The stake held by Orascom in HTIL had created a controversy in India as the Egyptian firm also has operations in Pakistan. It was speculated that the Orascom dispute was raked up by the Essar Group to increase its clout in Hutch-Essar.

Vodafone and Reliance Communications are believed to have already completed their due diligence on Hutch-Essar while Essar and its bankers are now examining the books, according to industry sources. The new offer from Hutchison for the stake sale in HTIL would lead to delays as the bidders would have to conduct due diligence on HTIL.

If Hutchison and the bidders proceed with this strategy, it would be interesting to see Orascom's response. It is no secret that Orascom is very keen to establish its presence in India, but the high valuations of Hutch-Essar has reportedly dissuaded the company from making a bid.