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Prospects for Vedanta-Cairn deal brighten

Prospects for Vedanta-Cairn deal brighten
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First Published: Thu, Sep 23 2010. 11 33 PM IST
Updated: Thu, Sep 23 2010. 11 33 PM IST
Anil Agarwal’s Vedanta Resources Plc has inched closer to taking control of Cairn India Ltd, a subsidiary of London-based natural resources firm Cairn Energy Plc that it is seeking to acquire for as much as $9.6 billion (Rs 43,776 crore).
A senior official of state-run Oil and Natural Gas Corp. Ltd (ONGC) disclosed on Thursday that it had not made a widely-anticipated counter bid before 7 September, the deadline for such a bid.
“The counter-offer date is gone and we didn’t make an offer. We made a conscious decision based on legal and commercial considerations,” said R.S. Sharma, chairman and managing director of ONGC, at a press conference held after the company’s annual general meeting.
“ONGC’s interests will be protected,” he added.
The closure of one of the largest domestic acquisition deals in India now depends on Vedanta getting procedural clearances from the oil ministry and approval from the Securities and Exchange Board of India (Sebi), the stock market regulator, for an open offer to buy shares from other Cairn India shareholders. The open offer depends on whether Sebi takes on board the ONGC claim to stock exchanges that it had, by virtue of holding a stake in a joint venture with Cairn in an oil block, a first right of refusal.
ONGC is a partner with Cairn India in the joint venture that runs the latter’s main oil asset in the country. Cairn is the operator of block RJ-ON-90/1 in Rajasthan while ONGC is the licensee and a partner in the field with a 30% stake.
The state-run company had claimed “pre-emptive right” in relation to Cairn’s participatory interest and had written to the stock exchanges stating that Cairn Energy needs its nod for the Vedanta deal. Sharma refused to let on whether ONGC was forfeiting this first right of refusal.
Asked if ONGC had waived that pre-emption right, Sharma said, “I did not say that. All I have said is that we did not make a rival offer by the close of deadline as per Sebi norms.”
Vedanta last month announced its decision to enter the oil business by paying up to $9.6 billion for a majority stake in Cairn India. Its offer of Rs 405 per share included non-compete fees of Rs 50. The stake sale will be followed by an open offer for up to 20% more of Cairn India’s equity at a price of Rs 355 per share.
“We have discussed the issue. At these prices, it (the offer) is not viable,” said a senior ONGC executive, who did not want to be identified.
“We are not passive to the transaction...we have done very thorough evaluation...ONGC’s management has acted in an absolutely responsible manner...no board will allow us to take a decision where we are getting negative returns,” Sharma added.
Cairn also has a pending dispute with ONGC on the payment of royalty. Cairn has declined to pay royalty payments to the government, which at present are being entirely absorbed by the state-owned oil explorer. ONGC expects the royalty to be $2 billion paid over the life cycle of the field. Similarly, Cairn has challenged its cess dues and is paying these under protest.
Reuters reported earlier that Cairn Energy believes ONGC has no pre-emption rights, citing a letter dated 10 September by Simon Thomson, legal and commercial director of Cairn Energy, to the Indian firm.
However, Edinburgh-based Cairn Energy’s chief executive Bill Gammell, who was recently in New Delhi, said that Cairn had no differences with ONGC. He also added that he expects to complete the stake sale by the end of this year or early next year. The firm would seek approval of its shareholders on 7 October.
Spokespersons of Cairn India and Vedanta did not respond to phone calls or to a message left on their cellphones.
PTI and Bloomberg contributed to this story.
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First Published: Thu, Sep 23 2010. 11 33 PM IST