The blockbuster deal, which has been in the news last week, in the Indian energy space is now official. London-listed Vedanta Resources plc has said that it will acquire 51% to 60% stake in Cairn India Limited for approximately $8.5-9.6 billion (nearly Rs
40,000 crore). Vedanta Resources will hold 31-40% of Cairn India directly while Sesa Goa will acquire 20%.
The deal, which is at a 32% premium to Cairn India average closing price for 90 days prior to August 14, 2010, is expected to close by Q1 of 2011. Vedanta and Sesa Goa would finance the deal through debt and cash resources respectively. Cairn India Ltd stocks went up to reach 52-week-high of Rs 368 today morning on the BSE and were trading at Rs 334, down by Rs 21.45 or 6.03% at 2 pm.
Vedanta will make an open offer to Cairn India shareholders, at not less than Rs 355, for up to 20% of the issued shares in Cairn India, in accordance with the requirements of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “Open Offer”).
With this deal, which will be immediately earnings accretive, Vedanta hopes to become an Indian natural resources champion with a hold over a large and diverse resource base with a potential to produce nearly 25% of India's output.
According to media reports, the Vedanta-Cairn deal may face a stumbling block as the Indian government and Cairn's JV partner ONGC have reportedly expressed reservations on the alliance.
Edinburgh-based Cairn Energy Plc holds 62.37% interest in the India-listed Cairn India. Vedanta will acquire these shares from Cairn Energy, for Rs 355 per share and also pay a non-compete fee of Rs 50 per share. Cairn India currently has a market capitalisation in excess of $14 billion and is the fourth largest oil and gas company in India. Cairn India has interests in 11 blocks in India and Sri Lanka.
According to the Financial Express report, the petroleum ministry has taken strong exception to Cairn India’s failure to secure clearance from a Director General of Hydrocarbons-led panel before announcing a 37% increase in resource base at its Rajasthan field. This could jeopardise its parent Cairn Energy's plan to sell a significant stake to Vedanta Resources.
The ministry suspects the intention of the “hurried” announcement was to boost the company’s valuation before a sale. Following the announcement on March 23, Cairn India shares rose 3.7% to close at Rs 292.80 on the Bombay Stock Exchange. Sources said the ministry has already conveyed its displeasure to Cairn India, the FE report added.
The IPO of Cairn India which floated in 2007 created financial flexibility to allow the development of Cairn’s world-class discoveries in Rajasthan. The completion of the first phase of the Rajasthan development brings the production approximately at 1,25,000 barrels per day.
"The Cairn Board believes that now is an appropriate time to realise further value from its shareholding in Cairn India, whilst at the same time maintaining exposure to the ongoing business through a significant retained shareholding," stated a Cairn release.
Cairn has the potential to produce more than 240,000 bopd, around 25% of India's production. Cairn India is the country's second-biggest private sector crude oil producer behind Reliance Industries, operating three oil fields in Barmer namely Mangala,
Bhagyam and Aishwariya.
Bill Gammell, Chief Executive of Cairn said, “The transaction will result in a substantial return of cash to shareholders. The transaction will also ensure we have the financial flexibility to focus on an active multi-year exploration and drilling programme in
Greenland and also consider further material growth opportunities.”