Vedanta Resources stands to save as much as Rs900 crore, or $20 million, on its deal to acquire Cairn India.
The deal value, earlier pegged at $9.6 billion, has come down to $9.4 billion after the company’s subsidiary Sesa Goa picked up 10.4% stake in Cairn India from Petronas International Corp of Malaysia at a price lower than that offered by it in the open offer, Vedanta Resources officials said in a conference call on Thursday.
“We have purchased 8.1% stake in Cairn India under the open offer and another 10.4% from Petronas. Since the Petronas deal was lower than the original open offer transaction, the actual deal size is now lower than the original envisaged number,” said Navin Agarwal, deputy executive chairman, Vedanta Resources.
On April 19, Petronas sold off its entire 14.94% shareholding in Cairn India, the Indian arm of UK-based Cairn Energy Plc. Of this, 10.4% was picked up by Sesa Goa and the remaining by a set of institutional investors.
Sesa Goa picked up the 10.4% Petronas stake at Rs331 per share as against the open offer price of Rs355 apiece. The open offer opened on April 11 and closed on April 30.
Experts say the Petronas deal came as a good opportunity and Vedanta was able to use it strategically to bring down the final value of the $9.6 billion deal.
“If at all Vedanta had crossed 20% in the open offer, then further increase of shareholding would have happened at a pro-rata basis. Which means that Petronas would have found it difficult to offload its entire stake in Cairn India. Chances are that they would have ended up with a meagre 3-5%, which would have meant nothing for the company,” an energy expert from a leading international consulting firm said on the condition of anonymity.
He said it was a win-win situation for both the companies. Vedanta was able to convince Petronas that at Rs331 per share, it was the best offer that it could have got for its holding of over 14%.
On its part, Petronas was also getting tax benefits on the deal and making good profits.
Indeed, it was a lucky deal for Vedanta whose open offer ended up receiving a tepid response. With the Petronas stake in its pocket, it had earlier planned to reach a massive shareholding of 70% in Cairn India, which would have taken the deal size to $11.1 billion. But post the open offer, which brought in just 8.1% stake, it had to curtail its ambition back to 60% and include the Petronas stake as part of the open offer.
“Cairn will sell a stake in Cairn India to Vedanta equivalent to 40% of the share capital,” said a note by Cairn India on Thursday. This deal will be done at a price of Rs405 per share, thereby taking the deal value to $9.4 billion.
Despite the Petronas boost, the Cairn-Vedanta deal still has several issues to reckon with as it awaits government approval.
“Irrespective of the eventual outcome, lack of certainty on the royalty issue could remain an overhang on the Cairn India stock,” analysts Nilesh Banerjee and Vikas Jain from brokerage house Goldman Sachs wrote in a May 31 report.
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