By Aman Shah
MUMBAI/LONDON (Reuters) - Vedanta Ltd's
The deal, which will help parent Vedanta Resources Plc
Vedanta began simplifying its complex structure with an overhaul in 2012, but further moves to clean up the group and buy out minorities in its cash-generating units have long been awaited by the market.
Shareholders in Cairn India, India's cash-rich top private sector oil producer, will get one share in Vedanta Ltd for every share held, the companies said in a joint statement on Sunday.
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The shareholders will also get one redeemable preference share in Vedanta Ltd with a face value of 10 rupees, making the deal worth roughly $2.3 billion. That implies a premium of 7.3 percent to the closing price of Cairn's shares on Friday and a ratio of 1.04 for 1, marginally better than expectations of a simple 1 for 1 swap.
"I believe this will provide us with an opportunity for a positive re-rating of the company," Albanese said in a call with journalists. "It will simplify the business and make it easier to understand, which is what holds back many investors in the UK market from considering the PLC right now."
The deal is expected to close in the first quarter of 2016.
Eliminating minority interests in the structure should also give the group unencumbered access to Cairn India's cash and align cash flow generation with debt, Barclays analysts said in a note. Cairn India has a roughly $2.6 billion cash pile.
Though long-expected, the timing of the buyout follows a sharp drop in Cairn India's share price as oil prices fell, making for a favourable merger ratio for Vedanta. Cairn India shares have plunged more than 50 percent over the past year.
The shares initially fell last week when media reports of the buyout emerged but on Monday they closed up almost 4 percent, while shares in Vedanta Ltd fell 1.3 percent on the Mumbai stock exchange. Shares in Vedanta Resources PLC where down 1 percent in London by 1145 GMT, in line with the broader mining sector, after rising almost 4 percent in early trade.
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Vedanta Resource Plc, controlled by one-time scrap metal dealer Anil Agarwal, currently holds a majority interest in Mumbai-listed operating unit Vedanta Ltd, which in turn holds a 59.88 percent stake in Cairn India.
But Vedanta Ltd holds other assets, including about 65 percent of Hindustan Zinc
Both companies count the Indian government as minority shareholders, limiting Vedanta's ability to move.
"We would look forward to participate in what would likely be an auction at that point in time," Albanese said on Sunday.
Cairn, which in March said it would cut spending by about 60 percent for the fiscal year starting April 1, said those plans, closely watched by India's government, would be unchanged.
Vedanta is also contesting a $3.3 billion tax claim from the tax authorities in relation to Cairn India's 2007 listing. That liability and a $1.2 billion inter-company loan advanced by Cairn India to its parent last year were factored into the deal, Vedanta Chief Financial Officer, DD Jalan, said.
The deal will now have to be approved by regulators and also, under new rules in India, by a majority of the companies' minority shareholders. Cairn's largest minority holder is former owner Cairn Energy Plc
Cairn Energy said on Sunday it would assess the proposal.
Lazard & Co advised Vedanta Ltd, while JP Morgan Cazenove and Morgan Stanley were joint advisers to Vedanta Plc.
(Additional reporting by Mamidipudi Soumithri in BENGALURU and Silvia Antonioli in LONDON; Writing by Sumeet Chatterjee; Editing by Susan Fenton)
