Vedanta Resources Plc to buy 51-61% stake in Cairn India for $8.5-9.6bn

Vedanta Resources Plc will acquire a 51-61% equity stake in Cairn India for approximately USD 8.5-9.6 billion via debt and cash, the company said on Monday. The global metals and mining major however, added that it would make an open offer for buying an additional 20% stake in Cairn India at Rs 355 a share including a non-compete fee of Rs 50 per share. “The open offer price depends entirely on Vedanta, not Cairn Energy Plc,” Cairn Energy Plc chief Bill Gammell stated.

The deal, which has been valued at Rs 405 a share, would be EPS accretive immediately, the company added.

The deal will see Anil Agarwal-promoted Vedanta, which owns Sterlite Industries, Hindustan Zinc and Sesa Goa hold 31-40% directly in Cairn India, while Sesa Goa will control 20%.

Post the deal, Edinburgh-based oil producer Cairn Energy Plc would hold only 10.6-21.6% as against 62.4% currently, in its Indian unit.

“The proposed acquisition significantly enhances Vedanta’s position as a natural resources champion in India. Cairn India will benefit from Vedanta’s track record of acquiring and growing world class companies, especially in India,” Agarwal stated.

Talking about the deal, Gammell said, “This is not an exit from India from Cairn Energy. This is the right time to dispose off some parts of the India business. We are aiming at de-risking Cairn’s business in India. In fact, this deal will give financial flexibility to pursue other opportunities. Also a majority of the proceeds may be returned to the shareholders.”

The deal however remains under the centre’s scrutiny as Oil Secretary S Sundareshan has said that the nod to the deal would be governed by production-sharing contract (PSC) norms. Also, “we will consult ONGC before approving the deal”, he added.

Reacting to the deal, Prabhat Awasthi of Nomura said the deal was not out of fair value range and would be EPS accretive. “It is not a bad transaction from Vedanta’s perspective,” he said adding that getting financing from Sesa Goa would not be an issue.

Vallabh Bhansali, Chairman Enam Financials said the deal was in line with Vedanta’s strategy to acquire. “They have the ability to understand the contours of the oil industry,” he stated adding that the Securities and Exchange Board of India (SEBI) might look into the non-compete fee of Rs 50, but it won’t be an issue.

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