Vedanta-Cairn merger clears final hurdle

Deal gets approval of over 92% of Cairn's shareholders

The planned merger of Cairn India with Vedanta has received required approvals from its shareholders, Cairn India said in a statement to the BSE on Monday.

Shareholders of Cairn India had earlier in the day cast their vote on the planned merger in Mumbai. Shareholders of Vedanta had last Thursday cast their votes at a meeting in Goa.

An approval from Cairn India’s shareholders was seen as crucial for the merger to be implemented as Cairn’s minority shareholders, including Life Corporation of India (LIC), had earlier expressed reservations on the deal offered.

In a bid to sweeten the deal, on July 22, Vedanta and Cairn India announced a revised deal in which Vedanta offered minority shareholders of Cairn India one equity share and four redeemable preference shares with a face value of Rs 10 each.

The revision was to sweeten the earlier deal, which involved one equity share and one redeemable preference share. The preference shares will carry a coupon of 7.5 per cent and tenure of 18 months.

“The equity shareholders of Cairn India have approved the Scheme of Arrangement of Cairn India Limited with Vedanta Limited (“scheme”), with requisite majority,” Cairn India said in a statement to the BSE.

Of the members present and validly voting, 65.41 per cent, representing 92.86 per cent in value, voted in favour of the resolution approving the scheme, Cairn India said referring to the court-convened extraordinary general meeting that was held on Monday in Mumbai.

In the post-ballot voting, the company said, “The scheme has also been approved by a majority of the minority shareholders. The public shareholders of the company have casted 72.43 per cent of votes (in value) in favour of the resolution.”

The company now expects to complete the proposed merger by the end of the current financial year. The scheme will now be subject to the approval of the jurisdictional high courts and other regulatory approvals. However, the shareholders’ approval was seen as the major hurdle for the merger, which has now turned in favour of the deal.  

“I am pleased that the shareholders of Cairn India have approved the merger of Cairn India with Vedanta Limited. We are confident that the financial strength and diversified portfolio of Tier-I assets of the merged company, with strong growth potential, will provide de?risked earnings and stable cash flows and drive long?term value,” said Navin Agarwal, chairman, Cairn India.

On Friday, Vedanta announced its shareholders, secured and unsecured creditors had approved Cairn India’s merger with it under a revised scheme. “Of the members present and voting at an extraordinary general meeting of Vedanta shareholders, 97.84 per cent in number and representing 99.99 per cent in value voted in favour approving the scheme,” the company said.

Post the merger, the minority shareholders of Cairn India will hold a 20.2 per cent stake in the merged entity, while Vedanta Plc’s ownership will be 50.1 per cent and the remaining 29.7 per cent will be owned by Vedanta’s minority shareholders.

“Most of the shareholders at the EGM were in favour of the merger, barring a few who expressed strong views against it,” said one of the shareholders who were present at the meeting today. Proxy advisory firms have also been divided on the proposed merger of the two companies. On 31st August, Business Standard reported, Proxy advisory firms Stakeholders’ Empowerment Services (SES) and Institutional Investor Advisory Services (IiAS) have given opposite recommendations to the shareholders of Vedanta on its proposed merger with Cairn India.

“The deal would be beneficial from a long-term perspective to both the shareholders as well as Cairn which led to the deal being favored,” said a senior official from LIC. The insurance company hold 9.06% stake in Cairn India.

“When the company revised the deal offer, it would have been with some consultation with minority shareholders like LIC. Good move for Vedanta, Cairn ‘s cash flow obviously will be enjoyed at Vedanta levels,” said an analyst with a domestic brokerage firm who did not wish to be identified.

The merger is been seen as a major positive for Vedanta. “As leverage ratios for Vedanta will now change, it is certainly positive for the company and hopefully there are no more hurdles going ahead,” said a second analyst with a domestic brokerage firm who did not wish to be quoted.

For Cairn India’s shareholders, he added, “It makes sense to remain invested as diversified portfolio will give access to Vedanta's zinc business which has been doing very well. So to that extent, looking at overall risk factors, considerable risk seems to be hedged since it has been distributed to several cycles from a pure play of oil & gas,” he said.