Vedanta sweetens Cairn merger deal, offers 3 additional preference shares

New Delhi: Unable to quickly absorb its cash-rich oil subsidiary Cairn India, mining billionaire Anil Agarwal's Vedanta Ltd on Friday sweetened the merger deal by offering three additional preference shares.

Agarwal had in June last year announced merger of Cairn India with parent Vedanta Ltd in a USD 2.3 billion all-share deal to create India's largest diversified natural resources company.

That time, it was announced that shareholders of Cairn India will get one ordinary share and 7.5 per cent redeemable preference share of Vedanta Ltd with a face value of Rs 10.

Today the company announced that "each Cairn India minority shareholder will receive for each equity share held one equity share in Vedanta Ltd and four Redeemable Preference Shares with a face value of Rs 10 in Vedanta Ltd, with a coupon of 7.5 per cent and tenure of 18 months from issuance."

The new ration, the company said, implied premium of 20 per cent on one month Cairn India share price.

Originally, the deal was to close by March 2016 but a lingering retrospective tax issue and winning over half of the minority shareholders have proved to be a stumbling block.

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 per cent shares in Cairn India.

"The Boards of Vedanta Ltd and Cairn India have today approved revised and final terms for the transaction, taking into account prevailing market conditions and having regard to underlying commercial factors," the two firms said in a joint statement.

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.

Following completion of the transaction, Agarwal's London-listed flagship Vedanta plc's ownership in Vedanta Ltd is expected to decrease to 50.1 per cent from its current 62.9 per cent shareholding.

Cairn India minority shareholders will own 20.2 per cent and Vedanta Ltd minority shareholders will own a 29.7 per cent stake in the enlarged entity.

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.

Anil Agarwal, Chairman of Vedanta Resources plc, said: "The simplified corporate structure will better align interests between all shareholders for the creation of long term sustainable value."

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."