Vedanta likely to sweeten open offer price to Rs 405

In a move to appease Cairn India’s minority shareholders, Vedanta Resources is likely to revise the open offer price for them. A formal announcement on this is expected in a couple of days.

Sources familiar with the development said the Anil Agarwal-promoted Vedanta was close to taking a final decision on raising the open offer price to Rs 405 a share — as offered to Cairn Energy Plc, the UK promoters of Cairn India.

Vedanta’s Rs 405-a-share offer to Cairn Energy included a premium of Rs 50 as a non-compete fee. Other shareholders were offered Rs 355. The open offer, scheduled to begin on Monday, has been delayed in the absence of approval from Securities & Exchange Board of India (Sebi).

While Vedanta sources denied any sweetening of the open offer price, the sources said it was now a virtual certainty as the company wanted to put the controversy over unfair treatment to minority shareholders behind it.

Cairn Energy CEO and Cairn India Chairman Bill Gammell had announced the setting up of a two-member panel consisting of independent directors Omkar Goswami and Edward Story to oversee minority shareholders’ interests in the takeover deal by Vedanta Resources.

When contacted, Omkar Goswami said, ''Whatever the independent committee decides will be communicated to the board.'' The panel was to submit its report three weeks after Cairn India's annual general meeting on September 15.

While international jurisdiction largely favours all shareholders be paid the same price, the Indian Takeover Code allows a 25 per cent premium as non-compete fee. In the past, several large Indian mergers & acquisitions have seen such a premium being paid. They include the Gujarat Ambuja-Holcim, Ranbaxy-Daiichi and Idea-Spice deals.

But questions have been raised as to whether this is a good corporate governance practice, especially as a Sebi committee recently suggested doing away with this price differential in the revised Takeover Code.

The proposal will be taken up by the Sebi board shortly for final approval.

This August, London-based Vedanta Group agreed to buy 51-60 per cent stake in Cairn India for $8.5 -$9.6 billion. Cairn Energy holds a 62.36 per cent stake in its Indian arm.

But the deal is awaiting the government’s nod. The ministry of petroleum & natural gas has referred the Cairn-Vedanta deal to the law ministry, after state-run Oil & Natural Gas Corporation, Cairn India’s 30 per cent partner in a Rajasthan field — sought the legal opinion of the solicitor-general on its post-deal royalty liability on output from the oilfields.

ONGC not only pays royalty on its 30 per cent share, but also on Cairn India’s 70 per cent stake.