Vedanta Sweetens Deal for Cairn Merger to Sway Shareholders

  • Cairn shareholders to now get 4 preference shares instead of 1
  • Parent to control 50.1% in merged entity from 62.9% now

Vedanta Ltd. sweetened the deal for Cairn India Ltd. shareholders by increasing the number of preference shares four times to salvage a deal which would help create a natural-resources group to compete with BHP Billiton Ltd. and Vale SA.

Vedanta will offer minority shareholders of Cairn India one equity share and four redeemable-preference shares with a face value of 10 rupees each, it said in a statement Friday. The preference shares will carry a coupon of 7.5 percent and tenure of 18 months. The revised deal implies a 20 percent premium to the one-month volume weighted-average price of Cairn shares, according to the statement.

The merger was announced in June last year when Vedanta offered one equity share and one preference share to merge Cairn with itself. In January, Vedanta Plc Chairman Anil Agarwal had said the merger will be completed by March, though it was then delayed as the approval of key shareholders could not be secured.

“The revised terms are a bit of a sweetener,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “This clearly shows Vedanta is seeking quicker approvals from major shareholders.”

Cash Reserves

The merger will also help the group weighed down by 780 billion rupees of debt. Vedanta Ltd. is India’s most-indebted base metals company. Cairn India had 233.9 billion rupees of cash and near cash as of June 30.

“The simplified corporate structure will better align interests between all shareholders for the creation of long-term sustainable value,” Agarwal said in the statement. On Thursday, Cairn India Chairman Navin Agarwal had said the merger is likely to be completed by March 2017.

Shares of Cairn India closed 8.5 percent higher at 191.90 rupees in Mumbai on Friday. Vedanta Ltd. ended with a 7.8 percent advance to 169.30 rupees, while the benchmark S&P BSE Sensex was 0.3 percent higher.

Vedanta Plc’s ownership in Vedanta Ltd. is expected to fall to 50.1 percent on completion of the merger from 62.9 percent now, according to the statement. The courts will convene meetings of shareholders of Vedanta Ltd. and Cairn India in September to discuss the new terms. Cairn India’s minority shareholders will own 20.2 percent and Vedanta minority shareholders 29.7 percent in the merged entity.

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