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Business News/ Companies / Minority shareholder concerned over Cairn-Vedanta deal
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Minority shareholder concerned over Cairn-Vedanta deal

On the sidelines of the Cairn India AGM, a United India Insurance representative said the company opposes the merger

On 14 June, Vedanta announced the merger of Cairn India with itself, in a deal that many said would give Vedanta access to Cairn India’s cash reserves. Photo: ReutersPremium
On 14 June, Vedanta announced the merger of Cairn India with itself, in a deal that many said would give Vedanta access to Cairn India’s cash reserves. Photo: Reuters

Mumbai: The proposed merger between Cairn India Ltd and parent company Vedanta Ltd is seeing some resistance from smaller shareholders, even though the companies maintain that the deal is on track.

On the sidelines of the Cairn India annual general meeting (AGM) held in Mumbai on Tuesday, a representative of United India Insurance Company Ltd said the company opposes the merger and arrangement between Cairn India and Vedanta. He declined to be identified.

To be sure, United India Insurance holds less than 1% stake in Cairn India. However, recent reports have suggested that other shareholders may have reservations about the proposed deal as well. On 6 July, CNBC-TV18 reported that Life Insurance Corporation of India Ltd (LIC) wants a better share swap ratio for minority shareholders. LIC and UK-based Cairn Energy Plc are the largest minority shareholders in Cairn India and hold a little less than 10% each.

Cairn India’s management, however, maintains that the deal is on track.

“We have seen a fair number of shareholders who are very positive on the prospect of a merger. The proposed merger with Vedanta is on track," said Mayank Ashar, managing director and chief executive officer, Cairn India, at the AGM.

On 14 June, Vedanta announced the merger of Cairn India with itself, in a deal that many said would give Vedanta access to Cairn India’s cash reserves.

Cairn India had cash and cash equivalent of 16,867 crore as on 31 March. In contrast, Vedanta Ltd, which holds majority stakes in Hindustan Zinc Ltd, Balco Ltd and Vedanta Aluminium Ltd, is saddled with a debt of 37,636 crore.

As per the terms of the merger, for each stock held, shareholders of Cairn India will get one ordinary share of Vedanta Ltd. Minority shareholders will receive an additional 7.5% redeemable preference share of Vedanta Ltd, which can be redeemed at the face value of 10 at the end of 18 months. The transaction represents a 7.3% premium to Cairn India’s 12 June closing stock price and is expected to be completed by the end of March 2016, according to a joint statement issued by Vedanta and Cairn India on 14 June.

“Not only will this merger de-risk earnings through increased diversification from exposure to a larger commodity mix, it will also help garner benefits of increased economies of scale. You will get access to Vedanta’s tier I metals and mining assets, which are well invested, low-cost and have a long life," said Navin Agarwal, chairman, Cairn India, during his address to the AGM on Tuesday.

Analysts have been lukewarm towards the merger proposal.

“...the merger ratio is below our expectations; while additional 7.5% redeemable preference share provides some marginal benefit of approximately $135 million (that is, 11/share for minorities), we don’t think this is sufficient to offset Cairn’s cash (about $2.7 billion) which gets diluted upon merger," UBS Securities India Pvt. Ltd said in a 15 June report.

With a majority of Cairn minority shareholders (holding 40% equity) required to approve this merger, we think there is a risk of institutional investors delaying the process, which could impact sentiment, the report pointed out, adding that the impact of the merger is negative for Cairn India shareholders.

Cairn India’s shares were down 2.98%, at 162.75 apiece on Tuesday. The benchmark index BSE Sensex closed at 28,182.14, down 0.84%.

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Published: 21 Jul 2015, 07:33 PM IST
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