Cairn, Vedanta get LIC backing for merger

LIC believes the merger with Vedanta Ltd will insulate Cairn India from potential risks arising from its single line of business


The support of LIC, which owns a 9.06% stake in Cairn India, is crucial for the merger as it requires approval from at least 51% of the firm’s minority shareholders. Photo: Bloomberg
The support of LIC, which owns a 9.06% stake in Cairn India, is crucial for the merger as it requires approval from at least 51% of the firm’s minority shareholders. Photo: Bloomberg

Mumbai: Life Insurance Corp. of India (LIC) will vote in favour of a proposed merger of Anil Agarwal-controlled Vedanta Ltd and Cairn India Ltd, said two people familiar with the development.

The support of LIC, which owns a 9.06% stake in Cairn India, is crucial for the merger to go through. The merger requires approval from at least 51% of Cairn India’s minority shareholders. 

The state-owned insurer’s decision comes after Vedanta sweetened an earlier offer for Cairn India’s shareholders to salvage the merger that would give Vedanta access to Cairn India’s $3.5 billion cash pile. The cash will potentially help Vedanta repay debt and reduce interest costs.

Proxy advisory firms are still divided over the merits of the Cairn-Vedanta merger proposal. 

While Stakeholders Empowerment Services has recommended that Cairn India shareholders vote against the merger, citing a lack of transparency and Vedanta’s failure to justify the revised share-swap ratio, Institutional Investor Advisory Services has suggested investors support the merger, arguing that it will create a large, diversified natural resources company with reduced earnings volatility and enable better allocation of capital. 

Apart from LIC, the other big minority shareholder in Cairn India is Cairn UK Holdings Ltd, whose parent Cairn Energy Plc. sold a controlling stake in its Indian unit to Vedanta Resources Plc. in 2011 but retained a 9.82% stake.

Total public shareholding in Cairn India stood at 40.12% at the end of June. 

“Cairn is assessing whether the proposal is in the interests of Cairn Energy Plc.”, the UK-based company said in an emailed response. 

LIC, Cairn India and Vedanta didn’t respond to emails seeking comment.

The revised merger terms will earn considerably more for Cairn India shareholders compared with the old deal, said the people cited above, requesting anonymity as LIC’s voting decision is confidential.

The insurer also believes that a merger with Vedanta will insulate Cairn India from the potential risks arising from the company’s single line of business based on a single commodity (crude oil), they added. 

The Cairn India shareholder voting began on 12 August and will close on Sunday evening. The final tally of the voting by Cairn India’s public shareholders will be disclosed at a court-convened meeting on 12 September. 

On 22 July, Vedanta offered Cairn India shareholders one equity share and four redeemable preference shares in the metals and mining company, sweetening the terms after minority shareholders such as LIC opposed the earlier offer of one equity share and one redeemable preference share, made on 14 June 2015.

On Wednesday, Vedanta summoned a shareholders’ meeting to consider the new offer. LIC, as a minority investor in Vedanta, has voted in favour of the merger terms, according to the people cited above. 

LIC also holds 3.9% in Vedanta.

On Thursday, Vedanta held a planned court-convened meeting in Goa for the proposed merger.

The results of the voting by Vedanta’s minority shareholders wasn’t disclosed till the time of going to press. 

In an interview on 20 August, Tom Albanese, chief executive officer of Vedanta Resources, said that the company had received good response from some shareholders and proxy firms on the revised terms of the merger. 

Vedanta had said that it received “constructive feedback” from its minority shareholders on the proposed merger.

“We have received good response from proxy firms, and big and small shareholders we continue to talk to,” Albanese had said. 

Between 22 July, when Vedanta announced the revised offer for the merger, and 8 September, Cairn India shares gained 3.25% and Vedanta rose 3.76% on the BSE, while the exchange’s benchmark Sensex gained 4.77%. 

If this deal goes through, Cairn India’s minority shareholders will own 20.2% in the merged entity and Vedanta’s minority shareholders 29.7%. Vedanta plans to consummate the merger by the end of March 2017.

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