MUMBAI: Vedanta and Cairn India have sweetened the deal for shareholders to make way for the merger of the latter with the parent company which has faced delays due to key shareholders expressing concerns over the valuations. The companies said that the deal was revised after taking into account “prevailing market conditions” and “underlying commercial factors”.
Analysts said the concerns of minority shareholders over the fairness of valuation were also a compelling reason for the decision. With the offer now revised, the companies are confident of completing the merger before March 2017. “We have looked at all the commercial aspects to revise the deal to arrive at this valuation. The board of Vedanta and Cairn IndiaBSE 8.72 % recognise that we can only go ahead with the majority of the minority shareholders approving it,” Tom Albanese, chief executive officer of Vedanta told ET.
LIC, which owns 9.06% stake in Cairn India and 3.9% in its parent Vedanta, had expressed concerns over the valuation. “In the course of the one year since the deal was announced, the financial performance of Vedanta has improved significantly and it now has a strong balancesheet. Cairn India shareholders will get the full benefit of the improved performance of Vedanta,”he said. Shareholders of Cairn India will now get one equity share of Vedanta and four redeemable preference shares of face value Rs 10 and coupon 7.5%, as against the proposal of one equity share and one preference share earlier. The two companies announced plans of the merger in June 2016, which would have given the metals and mining company Vedanta access to the cash of energy company Cairn India, which would have gone a long way to reduce its debt.But the deal hit a roadblock after shareholders like LIC expressed displeasure at the valuation and in a separate development the income tax department seized Cairn Energy Plc’s 9.5% stake in Cairn India, stating that the merger can take place only when the tax issues are resolved. “Cairn India shareholders get a sweeter deal and access to trophy high cost assets owned by Vedanta. We are confident that the financial strength and diversified portfolio of Tier-I assets will provide derisked earnings and stable cash flows, driving long-term value,” Sudhir Mathur, CFO and Acting CEO of Cairn India, said. Albanese also said the merger is “independent” of the dispute between tax department and Cairn India.
The tax department has frozen 9.5% stake of Cairn Energy in Cairn India in a dispute over the capital gains made on the stake sale by the former. The department has said that the merger cannot take place unless this is resolved.
“We don’t expect the tax issue to have any impact on the timeline for the merger. These are two independent issues,” Albanese said.