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Cairn Energy Indian Oil sells stake in Vedanta Resources up to $ 8.4 billion
Cairn Energy, the Scottish explorer, has sold most of its stake in prize Indian oil fields to Vedanta Resources for up to $8.4bn (?5.36bn), receiving a much higher premium than smaller investors have been offered for their shares.
In a complex deal, London-listed Vedanta is hoping to buy up to 61pc of
Mumbai-listed Cairn India partly from Cairn Energy and partly from
smaller shareholders for up to $9.7bn.
Cairn Energy, which owns a 62pc stake in Cairn India, will sell between
40pc and 51pc of the company – whose prime assets are oil fields in the
desert region of Rajasthan. It will therefore retain between 11pc and
22pc.
The final proportion will depend on whether smaller shareholders take up
an offer from Vedanta’s partly-listed subsidiary Sesa Goa to buy up to
20pc of the stock on the open market.
However, Vedanta will pay a 22pc premium to Cairn Energy at 405 rupees
per share and just a 12pc premium at 355 rupees per share to other
investors, claiming that the difference is because the Scottish explorer
has agreed not to compete in neighbouring countries.
Several sources close to negotiations confirmed that the arrangement was
constructed to reward the majority shareholder over minority ones.
“It might seem alien to us in London, but it’s very common in India,” one insider said.
Cairn Energy’s share price rose 24.9, or 5pc, to 493.2p on confirmation
of the deal that will see the company concentrate on its exploration in
Greenland.
Shareholders are in line for a windfall worth at least ?2bn, after Cairn
Energy’s chief executive said most of the cash would be returned to
investors.
“It’s the right time to realise some of the value we’ve created,” said Sir Bill Gammell, its chief executive.
“While Cairn Energy has indicated its plans to return a substantial
proportion of the proceeds to shareholders, we do not expect to receive
further clarity on the actual amount until the completion of the
transaction,” said analysts from Cannaccord, recommending a hold.
However, Richard Griffith of Evolution Securities, said: “Cairn Energy’s
decision to sell the majority of its holding in Cairn India to Vedanta
is a smart move. Vedanta appears willing to pay a full value if not
assuming a bullish outlook for oil prices”
Meanwhile, Vedanta’s share price also rose ?1, or 5pc, to ?21.53, having
fallen substantially last week when the deal was rumoured.
For the miner, which is controlled by Indian billionaire Anil Agarwal,
it represents a stark move away from the company’s core metals business.
Mr Agarwal told The Daily Telegraph, that his motivation was creating an
“India-centric” company rather than becoming a big energy player.
Analysts had been sceptical about the mining company’s move into oil and
gas, but investors appear to have been cheered by the terms of the
deal.
“At first glance, it therefore feels to us that this is an opportunistic move,” said Amos Fletcher of JP Morgan Cazenove.
“Investors will be looking for reassurance that this deal will not endanger the company’s impressive organic growth profile.”
Vedanta will fund the deal by taking on $6.5bn of debt – not far off the
mining company’s market value – sharing the burden of overall
liabilities with Sesa Goa.
In contrast to Vedanta’s rise, share in Mumbai-listed Cairn India
dropped 22.6, or 6pc, to 332.85 rupees, and Sesa Goa dropped 31.5, or
9pc to 322.55p, amid sentiment that smaller shareholders in the Indian
marketplace had been squeezed.
Source: Telegraph
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