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Vedanta Resources Plc now stands to acquire Cairn India at $8.76 billion (Rs 39,420 crore), which is about $840 million (Rs 3,780 crore) less than the initial estimate of $9.6 billion (about Rs 43,000 crore), largely due to the royalty issue that delayed government approval for the deal.
The Cabinet Committee on Economic Affairs (CCEA) is set to consider an approval for the deal at its meeting to be held on Thursday.
Pending since August last, Vedanta had managed to bring down the cost substantially by negotiating a better deal with Cairn Energy plc and purchasing Petronas International Corporation's holding in Cairn India at a discount to the price paid to ordinary investors.
As a person acting in concert, Sesa Goa, a Vedanta Group company, had acquired 10.4 per cent stake in Cairn India at Rs 331 a share from Petronas while it bought 8.1 per cent stake at Rs 355 a share through the open offer.
The Edinburgh-based Cairn Energy's move to sweeten the deal by foregoing a non-compete fee of Rs 50 a share and execute the transaction in two tranches has surprised the markets.
“The climb-down on the pricing front by Cairn Energy may be a preamble to it bowing to ONGC's claim for making the royalty paid to the Government cost recoverable,” said an analyst.
The cost burden on royalty is set to go up with the increase in production from the Rajasthan oil field. Cairn had recently upgraded the potential output from the Barmer oilfield in Rajasthan to 300,000 barrels per day (bpd) from the earlier estimate of 240,000 bpd. The company produces 125,000 bpd against the approved production level of 175,000 bpd.
Moreover, the Government had recently approved Cairn India's estimate of recoverable reserves from Barmer oilfield to 1.65 billion barrels from 0.7 barrels. “Despite the positive vibes, the company had to climb down on the valuation as the outgo on royalty is expected to increase as the production goes up,” he said.
INORGANIC GROWTH
The $70-billion Vedanta Group, with metal and mining interests in India, Zambia, Ireland, Australia, South Africa, the UAE and Namibia, is known for acquiring strategic assets at an opportune time.
Starting with the acquisition of 80 per cent stake in a sick company Malco in 1995 for Rs 22.5 crore, the Group surprised when it bought CMT, an Australian copper mine for $43 million in 2000.
The Vedanta Group made its presence felt in the metals space when it bagged Balco and Hindustan Zinc through a disinvestment programme announced by the Government in 2001 and 2002. While the Balco deal was valued at Rs 551 crore, Hindustan Zinc was pegged at Rs 1,100 crore.
It further bought 78 per cent in Konkola Copper Mines Plc, Zambia, for $263 million in 2004.
Sesa Goa was acquired for $1 billion in 2007, while the mining business of the Goa-based Dempo Group was bought for Rs 1,750 crore in 2009. Last year, it acquired zinc assets of Anglo Zinc in Namibia, Ireland and South Africa for $1.3 billion.
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