In a bid to salvage the merger of the cash-rich oil firm Cairn India with its debt-laden parent Vedanta Ltd, the billionaire Anil Agarwal-led group has sweetened the deal.
The $2.3 billion (nearly Rs 15,301.32 crore) all-share transaction was originally announced on June 2015 and the deal to create India’s largest diversified natural resources firm, which could compete with BHP Billiton Ltd and Vale SA, was to close in March this year.
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But a lingering retrospective tax issue and winning over half of the minority shareholders including LIC, which was said to be opposed to the deal, proved to be a stumbling block.
Cairn-Vedanta merger: LIC says still not on board
Now, Vedanta has made a revised deal in a bid to make the merger to sail through. Vedanta Ltd is India’s most-indebted base metals company.
Here’s all you need to know about it new offer:
1) Vedanta has offered minority shareholders of Cairn India, one equity share and four redeemable-preference shares with a face value of Rs 10 each. The preference shares will carry a coupon of 7.5% and tenure of 18 months.
2) The revised deal implies a 20% premium to the one-month volume weighted-average price of Cairn shares, a joint statement by Cairn and Vedanta Ltd said.
3) Vedanta wants to use the Rs 23,290-crore cash lying with Cairn to pay off part of its Rs 77,952 crore debt.
In May, it rolled over a controversial $1.25-billion (nearly Rs 8,315.93 crore) loan taken from the cash-rich oil explorer Cairn India in July 2014.
But several conditions need to be fulfilled before the deal goes through
4) However, the merger can go through only when 9.82% shares that the oil explorer’s erstwhile parent Cairn Energy Plc holds in Cairn India are freed by the Income Tax Department.
Income Tax department had frozen the shares in pursuit of a Rs 29,000-crore tax demand on alleged capital gains made by Cairn Energy in 2006 when it transferred its India business into a new subsidiary Cairn India and listed it on stock exchanges.
Cairn Energy sold majority stake in Cairn India to Vedanta in 2011 but retained a minority shareholding.
Also LIC, which holds 9.06% in Cairn India, has to come on board. The insurer was opposed to the deal in the form it was proposed in June last year.
For the merger to go through, half of the minority shareholders, who together make up for 40% of the Cairn equity, have to approve the deal.
And Income Tax Department has previously said the freeze on Cairn Energy shares can be lifted if a collateral of an equivalent to their market value is offered.
5) Shareholder meetings of Vedanta Ltd and Cairn India will be convened on September 8 and September 12, respectively to get a minority vote on the merger.
“The simplified corporate structure will better align interests between all shareholders for the creation of long- term sustainable value,” Agarwal said in the statement.
6) Cairn India shares ended 8.5% higher at Rs 191.90 on BSE while Vedanta Ltd closed with a gain of 7.8% at Rs 169.30.
7) Post-merger, London-listed parent Vedanta Resources Plc’s holding in Vedanta Ltd will drop to 50.1% from 62.9%.
Cairn India’s minority shareholders will own 20.2% and Vedanta minority shareholders 29.7% in the merged entity.
The biggest among the minority shareholders are Life Insurance Corp of India (LIC) and Cairn Energy Plc of UK, the erstwhile owner of Cairn India. The two together control some 20% shares in Cairn India.
After consistently maintaining that the offer of 1:1 share plus one preference share was a fair offer, the Vedanta Group said the sweetened deal “offers significant benefits for Cairn India shareholders by de-risking earnings and stable cash flows supporting investment and dividends through the cycle, driving long-term value”.
Terming transaction terms as “attractive,” it said the deal offer exposure to Vedanta Ltd’s world-class metal and mining assets, increased free float and trading liquidity and potential re-rating of the merged company.
Sudhir Mathur, CFO and Acting CEO of Cairn India, said: “Cairn India shareholders will benefit from exposure to a diversified portfolio of world-class, low cost, long-life assets with significant growth.”
“We are confident that the financial strength and diversified portfolio of tier-I assets will provide de-risked earnings and stable cash flows, driving long-term value. Cairn India shareholders will benefit from the revised terms announced today, while retaining the upside from Cairn’s strong oil & gas assets,” Mathur said.
Tom Albanese, CEO of Vedanta Ltd, said the strategic rationale for merging Vedanta Ltd and Cairn India remains highly compelling.
Stating that companies with diversified resources have delivered superior returns for shareholders historically, he said, “The transaction consolidates our portfolio of attractive tier-I assets and simplifies the group structure, better positioning the group to deliver superior value to all shareholders over the longer term.”