Mumbai: Mr Anil Agarwal’s Vedanta Group on Sunday announced a merger of its oil and gas exploration subsidiary Cairn India with its flagship mining company Vedanta. The combined entity will be the largest diversified natural resources company in India and the seventh largest in the world in terms of revenue. According to the proposed $2.3-billion all cash deal, minority shareholders of Cairn India will receive one share of Vedanta for each share held in Cairn along with one 7.5 per cent redeemable preference shares of Vedanta with a face value of Rs10 per share. This implies a premium of 7.3 per cent to Cairn India’s last closing price of Rs 180.75.
The long-anticipated move would take Mr Agarwal a step closer to achieving his ambition of building an India-integrated resources group in the mould of Rio Tinto or BHP Billiton. The move needs approval of 50 per cent of minority shareholders of Cairn India, including its former parent Cairn Energy, which owns 9.8 per cent of total shares, and state-run insurance company LIC, which owns another 9 per cent.
The proposed merger would help Vedanta to retire a part of its debt, as Cairn India is a cash surplus company with a cash balance of Rs16,867 crore. Vedanta has a total outstanding debt of Rs 77,700 crore. A senior official from Vedanta said that cash at Cairn and debt at Vedanta have been duly considered in arriving at valuation and the swap ratio. “This transaction consolidates our portfolio of tier-I assets, which combined with strong management will deliver superior returns for all shareholders. It will result in improved financial flexibility to allocate capital to the highest return projects and sustain string dividends,” said Tom Albanese, CEO of Vedanta Ltd.
Post the merger, UK-listed Vedanta Plc’s ownership in Vedanta is expected to decrease to 50.1 per cent from its current 62.9 per cent. Reacting to Rs 20,495 crore tax demand on Cairn India, the Vedanta CEO told PTI that his company is “frustrated” by the demand raised by using retrospective law.The income-tax department had in March slapped a `20,495 crore tax demand on Cairn India for failing to deduct withholding tax on alle-ged capital gains made by its erstwhile promoter Cairn Energy Plc.
“My own view is that these types of cases don't help India's reputation in the international market. I was in Beijing last week and met some of the biggest fund houses from around the world and they were all asking what is going on in India,” he said.