The long-pending merger of Cairn India with parent Vedanta Resources today found support from proxy advisory firm IiAS, which said the combined entity will benefit from a diversified product mix.
Besides, IiAS (Institutional Investor Advisory Services) said the proposed merger “also balances interests of both sets of shareholders”.
The merger of cash-rich oil firm Cairn with its debt-laden parent Vedanta is likely to create the country’s largest diversified natural resources firm, which could compete with global majors BHP Billiton and Vale SA.
The recommendations to the Vedanta shareholders come days ahead of the company meeting its creditors on September 8 to seek their approval for the merger of Cairn India with it under a revised all-share deal.
Cairn India will also hold a shareholders meeting on September 12 to seek approval for its takeover by the parent firm.
According to a recent IiAS report, consolidation of the mining, oil and gas businesses will lead to simplification of the overall group structure and the combined entity is expected to benefit from a diversified product mix.
“The diversified product mix will reduce the earnings volatility as well as lend a greater financial strength to the entity due to increase in asset base, revenues, production volumes and service range,” IiAS said.
The merger will help Vedanta better allocate capital as well as have direct access to Cairn’s Rs 174 billion cash and equivalents which can be used for servicing debt.
The move will also benefit Cairn India as it gets exposure to metals and mining assets as well as access to low cost and longer life assets, the report said.
A diversified product portfolio will help ride cyclical downturn of oil prices and lead to stable cash flows, among other benefits, it added.
As per IiAS, share price of diversified natural resources firms outperform the oil and gas peers in the long term.
In a bid to salvage the merger, the billionaire Anil Agarwal-led Vedanta group recently sweetened the deal by offering three additional preference shares with the hope of winning over minority shareholders like LIC.
Vedanta, India’s most-indebted base metal firm, is said to be keen on using the Rs 23,290 crore cash lying with Cairn to pay off part of its Rs 77,952-crore debt.
For the merger to go through, half of the minority shareholders who together make up for 40 per cent of the Cairn equity have to approve the deal.