KKR in talks with ADAG

Kohlberg Kravis Roberts & Co (KKR), one of America's top private equity funds, has begun talks with the Anil Ambani group to try to form a partnership that will bid for Hutchison-Essar, India's third-largest GSM operator and the most sought-after acquisition in the telecom sector.

Investment bankers familiar with the development said that KKR, whose controversial buyout of the storied RJR Nabsico in 1988 was derided as an example of predatory capitalism at its worst, is keen to get a foothold in the world's fastest-growing telecom market by buying Hutchison's India wireless operations.

The New York-based KKR will thus join Texas Pacific Group and Blackstone, who have also been holding talks with the Anil Ambani group for a similar partnership. “It is very preliminary as of now. There are a number of unknowns in a transaction of this type,” a person familiar with the talks said. The R-ADAG group spokesperson was not available for comment.

KKR's move and the eagerness shown by both Blackstone and Texas Pacific intensify the suspense surrounding Hutchison-Essar. Hutchison Whampoa, the Hong Kong-based owner with a 67% stake, is believed to have shown an inclination to sell, but any buyer will have to contend with the Essar group, which owns the remaining 33%.

Last week, Texas Pacific along with Malaysia's Maxis made a bid for 100% of Hutchison-Essar at an enterprise value of $13.5 billion. The bidders approached Canning Fok, chairman of Hutchison Telecom International, the parent of Hutchison Essar, who was in India on a brief visit. The bid was turned down.

TPG then sought talks with the Anil Ambani group. The only unknown factor is the motive of the Essar group. The ships-to-steel conglomerate has a right of first refusal in Hutchison-Essar, which means that Hutchison Whampoa will first have to offer its stake to the group before selling it to others