Cairn deal gets Sebi green signal

The $9.6-billion takeover now awaits Cabinet approval

Vedanta Chairman Anil Aggarwal has cleared a major roadblock in his $9.6 billion (around Rs 43,200 crore) takeover of Cairn India. The market regulator today gave its green signal to the deal.

The Securities and Exchange Board of India’s (Sebi’s) clearance to Vedanta’s open offer for Cairn shareholders comes nearly seven months after the offer document was filed. The open offer, announced on August 17 last year, will be made at Rs 355 per share.

The deal, however, is yet to get the government’s approval on account of differences over who will bear the royalty burden on production from Cairn’s Rajasthan block. At present, ONGC, a 30 per cent partner in the block, bears the burden. It wants this to be shared. The dispute has reached the Cabinet.

In August 2010, Vedanta agreed to buy 51 per cent in Cairn India in what was till then the biggest deal in India’s oil and gas space. Any deal involving acquisition of 15 per cent or more in a listed company requires the acquirer to make an open offer for buying 20 per cent stake from public shareholders. This offer has to be approved by Sebi.

The open offer price is less than what Vedanta has agreed to pay Cairn (Rs 405 per share), which includes a non-compete fee of Rs 50 per share. The Rs 13,631-crore open offer was first scheduled to open on October 11 and close on October 30.

Today, Cairn India shares closed almost unchanged at Rs 345.15 on the Bombay Stock Exchange.

Vedanta will now have to announce a fresh schedule for the open offer which will be finalised within a fortnight. Enam and JM Financial are managing the offer.

Sebi, however, remained non-committal on the development. When contacted, a Sebi spokesperson said he “will have to check” if the regulator had given its approval. Incidentally, early this week, there was a faux pas on Sebi's part when it uploaded on its website information that it had issued final observations and cleared the offer. Later, Sebi officials confirmed that it was a mistake and the approval was “under process”.

The Cairn management is eager to conclude the transaction by April 15, for which it has shareholders’ approval. But sources say that now that the deal has been almost cleared, the deadline is likely to get pushed. Publicly, however, the Cairn management is sticking to the timeline. “We will stick to the April 15 deadline ... it's in the government's hands and the government has to take a decision,” Bill Gammell, the CEO of Cairn Energy, said after meeting top oil ministry officials earlier this week.

The petroleum ministry last month circulated a draft note on the deal for the Cabinet Committee on Economic Affairs. The committee’s meeting is due shortly.

After law ministry inputs, the oil ministry has watered down its preconditions. The government, therefore, is likely to clear the deal without caveats. But considering that there is still a difference of opinion on the royalty burden, the government is likely to insist on the matter being settled through an independent arbitration process. This has been accepted by both Cairn and Vedanta.

Government officials say the deal may in all likelihood be closed by May-end.