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Life Insurance Corporation of India (LIC), a minority shareholder in Cairn India (9.06 per cent stake), has sought a better offer, including higher dividend on the redeemable preference shares that the metal producer plans to offer Cairn shareholders as part of its planned merger.
The Anil Agarwal-promoted Vedanta on Sunday said it would merge its subsidiary Cairn India with itself for larger natural resource play. As part of the deal, each Cairn India shareholder will be offered an equity share of Vedanta Ltd, besides a 7.5 per cent redeemable preference share of Rs 10 face value.
Cairn India has Rs 16,867 crore of cash on its books, while Vedanta has debt of Rs 37,636 crore. This has led to concern among minority shareholders about the cash that will become part of the new entity.
At the current premium, the preference share offer will mean a Rs 752-crore gain for Cairn India’s shareholders. But now, this amount might be much higher, as LIC is seeking higher premium. “In a meeting, we discussed the contours of the merger and the valuations, including what minority shareholders such as LIC would gain,” said a person privy to the discussions.
In this deal, LIC’s vote will be crucial, as it is a large institutional shareholder. The merger would require most shareholders to vote, said a Cairn India release. It added the deal would require 75 per cent of the shareholders (by value) to be present at a shareholder meeting and vote in favour of the transaction.
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The Anil Agarwal-promoted Vedanta on Sunday said it would merge its subsidiary Cairn India with itself for larger natural resource play. As part of the deal, each Cairn India shareholder will be offered an equity share of Vedanta Ltd, besides a 7.5 per cent redeemable preference share of Rs 10 face value.
Cairn India has Rs 16,867 crore of cash on its books, while Vedanta has debt of Rs 37,636 crore. This has led to concern among minority shareholders about the cash that will become part of the new entity.
At the current premium, the preference share offer will mean a Rs 752-crore gain for Cairn India’s shareholders. But now, this amount might be much higher, as LIC is seeking higher premium. “In a meeting, we discussed the contours of the merger and the valuations, including what minority shareholders such as LIC would gain,” said a person privy to the discussions.
In this deal, LIC’s vote will be crucial, as it is a large institutional shareholder. The merger would require most shareholders to vote, said a Cairn India release. It added the deal would require 75 per cent of the shareholders (by value) to be present at a shareholder meeting and vote in favour of the transaction.
ALSO READ: Cairn India, Vedanta trade firm as board approves merger
On Monday, Cairn India shares closed 3.85 per cent higher at Rs 187.7 apiece, while the Vedanta stock ended 1.3 per cent lower at Rs 181.35. The benchmark Sensex ended 0.6 per cent higher.
Sources said the company officials had explained to the insurer how the merged entity would be a win-win for shareholders. The insurer had also sought a clarification on how Cairn India’s cash would be used to cut Vedanta’s debt. “Valuation premiums are lower than recent deals; so, further clarity is being sought,” said an official who attended the meeting. He added as LIC was a long-term investor, such clarifications were necessary to arrive at a decision.
After the merger, Cairn India minority shareholders will hold 20.2 per cent stake in the merged entity, while Vedanta’s minority shareholders will own 29.7 per cent.
In the past, LIC has been criticised for being a passive shareholder. However, its officials have maintained in such situations, they engage with companies to address their concerns.
Last year too, LIC had sought more information on Rs 7,500-crore loan given by Cairn India to its parent. It had sought clarifications since it was of the view that this related party transaction was not in the interest of minority shareholders.
