Cairn Energy Plc and Vedanta Resources have agreed to remove the non-compete provision and related non-compete fee of Rs 50 a share from the Sale and Purchase agreement for Vedanta's purchase of 40 per cent stake in Cairn India Ltd. This was announced by Vedanta and Cairn Energy on Monday.

After the removal of the non-compete fee, the effective sale price of Cairn India's shares would come down to $7.85 a share (Rs 355) as against $8.66 (Rs 405) a share earlier. Thus, the total consideration payable by Vedanta for the 40 per cent stake in Cairn India will now be reduced to $ 6.023 billion as against $6.65 billion.

The two companies have also agreed to restructure the transaction so that it will take place in two tranches. Vedanta will acquire 10 per cent stake in Cairn India on or before July 11, 2011. “The gross proceeds for the sale of the first tranche of sale shares will amount to $1.50 billion with net proceeds expected to be approximately $1.36 billion,” said Cairn Energy in a statement to the London Stock Exchange.

Following this, Vedanta's holding in Cairn India will stand at 28.5 per cent. Cairn Energy will continue to hold a controlling stake of 52.2 per cent.

The acquisition of the remaining 30 per cent stake by Vedanta will continue to be subject to consents and approvals from the Government of India. Cairn Energy expects the gross proceeds from the second tranche of sale to be at $4.52 billion and net proceeds to be approximately $4.04 billion.

Commenting on the development, Mr Anil Agarwal, Chairman of Vedanta, said, “Vedanta believes this initial 10 per cent purchase is a further demonstration of its commitment to India. We look forward to the successful completion of the proposed transaction.”

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