Mumbai: Vedanta Resources Plc will not offer retail shareholders of Cairn India Ltd—the Indian oil and gas company it plans to acquire—the non-compete fee being paid to its current promoters, Vedanta’s chairman Anil Agarwal said. The open offer being made through group firm Sesa Goa Ltd is yet to commence in the absence of a nod from the Indian government as well as capital market regulator Securities and Exchange Board of India (Sebi).
The price offered to retail shareholders was the “best and final,” Agarwal said at a joint press conference with Cairn Energy Plc chief executive Bill Gammell in Mumbai on Monday.
Ending speculation: Cairn Energy chief executive Bill Gammell (left) and Vedanta chairman Anil Agarwal at a press conference in Mumbai. Ashesh Shah / Mint
Vedanta Resources entered into an arrangement with Cairn Energy on 16 August to buy a 40-51% stake from it in Cairn India at a price of Rs405 per share, including a non-compete fee of Rs50. However, Vedanta has fixed a price of Rs355 apiece for shares to be acquired under the open offer triggered by the deal between the two UK-based companies. Many analysts said the deal was not in the best interest of Cairn India’s minority shareholders.
In a bid to generate a consensus for the transaction, Cairn India had announced the constitution of a panel comprising two independent directors on the company’s board to figure out the best way to proceed with the deal, including the issue of non-compete premium. The committee was to base its recommendations on feedback received from retail shareholders. Agarwal’s statement put to rest any speculation on the price that Vedanta is willing to offer to non-promoter shareholders of Cairn India.
“We are very clear that this (Rs355) is our best and final offer. It is a very lucrative price for retail shareholders,” said Agarwal. “The non-compete fee being paid to Cairn Energy is very important.”
Had the Rs50 premium been extended to the retail shareholders, Vedanta would have had to pay up to Rs3,570 crore more.
According to the deal, in exchange for the non-compete fee, Cairn Energy will not enter into any new business opportunities in regions where Cairn India is operational, including India and some neighbouring countries, for three years.
If Sebi accepts the recommendations of the takeover regulations advisory committee while redrafting the takeover code, the payment of non-compete fees to the promoter will not be allowed. The panel has suggested that all shareholders of a company should be paid the same consideration in case of an acquisition.
Sebi usually takes up to 60 days to grant approval to a proposed open offer from the date of application, and Agarwal said he was hopeful of receiving all necessary clearances by then. Vedanta had made the public announcement for the offer on 17 August, and the 60-day period ends on 16 October.
Cairn India’s shares rose 2.13% in Monday’s trading on the Bombay Stock Exchange to close at Rs345 apiece, even as the exchange’s benchmark index, Sensex, gained 0.44%. Since the announcement of the deal, Cairn India’s shares have lost 2.94%, while the Sensex has gained 11.96%.
“Though it is legal to offer a non-compete fee to promoters selling their stake in a company, ideally there should not be different prices for two sets of shareholders,” said Deepak Pareek, oil and gas sector analyst at Angel Broking Ltd, a Mumbai-based brokerage.
Pareek also said the reason for paying a non-compete fee to Cairn Energy needed clarity since it would retain what the company has called a significant stake in Cairn India and participate in future growth prospects. Also, Cairn India, after its acquisition by Vedanta, and Cairn Energy could have co-existed, Pareek contended.
“India being energy-deficient, both the companies could have profitably catered to a growing demand for fuel in the country, without necessarily having to compete with each other,” he said.
On the issue of state-run Oil and Natural Gas Corp. Ltd (ONGC)—a partner with a participating interest in Cairn’s oilfield in Rajasthan—enjoying a pre-emptive right with respect to Cairn’s assets, Gammell reiterated that the deal between Cairn and Vedanta was a corporate transaction and not a transfer of assets.
Gammell and Agarwal also addressed Cairn’s outstanding dispute with ONGC regarding the payment of royalty to the government. Cairn had declined to pay royalty to the government, which was being absorbed by ONGC.
“Royalty has been an issue for five or six years now. It is a matter between the government and ONGC to decide because of the way the production sharing contract has been set up. Neither Cairn nor Vedanta have any role in this,” Gammell said.
“There is no question of us paying any royalty. The agreement is very clearly written and the government is acting in accordance,” Agarwal agreed. Gammell also stated that timely closure of the present deal would help in boosting the confidence of international investors, many of whom are looking to invest in the oil and gas space in India with the ninth round of the New Exploration Licensing Policy commencing shortly.