In its bid to woo shareholders of Cairn India, Anil Agarwal’s Vedanta on Friday sweetened the merger deal between the two firms, which was first announced on June 14, 2015, by offering three additional preference shares. The June 2015 announcement, which could not be completed because of apprehension that shareholders of Cairn India — the biggest among them being the Life Insurance Corporation and Cairn Energy, UK, who together hold around 20% stake in the company — would not vote for it, had offered shareholders of Cairn India one ordinary share and 7.5% redeemable preference share of Vedanta with a face value of R10.
The revised offer, approved by the boards of Vedanta and Cairn India, on Friday provide that each Cairn India minority shareholder will receive for each equity share held one equity share in Vedanta and four redeemable preference shares with a face value of R10 in Vedanta, with a coupon of 7.5% and tenure of 18 months from issuance.
The new ratio, the company said, implied a premium of 20% on the one-month Cairn India share price. Originally, the deal was to close by March 2016 but now the new deadline has been fixed for March 2017. The merger is subject to shareholder approvals at each of Vedanta Plc, Vedanta Ltd and Cairn India, as well as customary regulatory approvals.
Following completion of the transaction, Vedanta’s Plc’s ownership in Vedanta Ltd is expected to fall to 50.1% from 62.9% now.
Cairn India minority shareholders will own 20.2% and Vedanta Ltd minority shareholders will own a 29.7% stake in the enlarged entity.
Post-merger, Vedanta could potentially dip into the Rs 17,152-crore cash lying with Cairn India to pay off part of its Rs 77,953 crore debt and to beef up its balance sheet. The merger will take away the rights of minority shareholders on usage of cash on Cairn’s balance sheet.
Welcoming the Cairn India board’s decision, Vedanta Group chairman Anil Agarwal in a statement said, “‘The simplified corporate structure will better align interests between all shareholders for the creation of long term sustainable value.”
With the revised offer, Agarwal, who has been under fire from Cairn’s minority shareholders, hopes to finally win them over in the shareholders’ meet scheduled in September this year.
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 offers exposure to Vedanta’s world-class metal and mining assets, increased free float and trading liquidity and potential re-rating of the merged company.
Tom Albanese, CEO of Vedanta Ltd, said the strategic rationale for merging Vedanta and Cairn India remains highly compelling. He said that companies with diversified resources have delivered superior returns for shareholders historically. “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,” he said.
UK-based Cairn Energy sold Cairn India to Anil Agarwal-led Vedanta for $8.67 billion in 2011.