India Inc seems to have regained its appetite for mergers and acquisitions. In the second-largest acquisition in India's iron ore industry, Sesa Goa, a subsidiary of London-listed Vedanta Resources, today acquired Goa-based Dempo group’s mining and maritime businesses for Rs 1,750 crore in an all-cash deal.
The assets sold include mining leases, mining rights, and related infrastructure in Goa. The acquisition will give Sesa Goa access to Dempo’s 70 million tonne of iron ore mineable resources in Goa. The transaction has been funded by Sesa Goa from its cash resources of Rs 4,143 crore.
Dempo has mining leases over 1,800 hectares in Goa. The mining assets include processing plants, barges, jetties, transhippers and loading capacities at Mormugoa port. The company produced 3.94 million tonne of iron ore and sold 4.36 million tonne in the year ended March 31, 2009.
In April 2007, Vedanta bought 51 per cent in Sesa Goa from Mitsui for Rs 4,070 crore, the largest M&A in the industry so far. Sesa Goa owns 180.5 million tonnes of iron ore reserve.
Analysts said the acquisition of V S Dempo & Co. Private Limited (VSD) was a logical and strategic fit with Sesa’s existing iron ore business and was expected to create significant long-term value for all shareholders through the synergy. Ambit Corporate Finance acted as financial advisors in the transaction.
Sesa Goa and Dempo Group have signed a definitive share purchase agreement under which the former has acquired all the outstanding common shares of VSD, which in turn, also holds 100 per cent of Dempo Mining Corporation Pvt Ltd and 50 per cent equity shares of Goa Maritime Pvt Ltd.
The acquisition will be on a debt-free and cash-free basis, and included working capital of Rs 145 crore, a statement issued by the two companies said.
Sesa Goa’s scrip went up 6.66 per cent to Rs 192.10 on Thursday, long before the company announced its acquisition. The shares have risen 17.64 per cent in the past one week and 39.20 per cent in the last one month.
The un-audited revenue and EBITDA of VSD, one of the largest exporters of iron ore from Goa, in FY2009 were around Rs 976 crore and Rs 417 crore, respectively.
India is the world's biggest supplier of iron ore after Australia and Brazil, producing more than 200 million tonne of iron ore annually and exporting about half of that.
State-run NMDC, which produces about 29 million tonne annually, is the largest Indian player in mining.
China is India’s biggest buyer, with its proximity helping it secure ores with low freight costs. Sesa Goa, the largest exporter to China, exported about 8 million tonne to China in the 2008/09. Miners in Goa, on India’s west coast, have lower costs since the mines are located near the port and therefore avoid road and rail charges.
The cost of mining iron ore ranges from $8 to $16 per tonne, but rail transportation to the port can be as high as $30. The industry has been lobbying for lower rail freight charges.
“We are highly delighted with this opportunity to consolidate our iron ore business. The integration of Sesa and VSD’s operations will achieve great synergy,” said Anil Agarwal, Chairman of Vedanta group.
“We are extremely pleased to have reached this agreement with Sesa, which will ensure long-term sustenance of VSD’s operations,” said Shrinivas V Dempo, Chairman and Managing Director, Dempo Group.
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