Metals magnate Anil Agarwal’s plan to merge two of his Indian natural resources companies — Vedanta and Cairn India — appears to be facing more challenges than initially expected. Minority shareholders in Cairn India, who will have to approve of the merger, are getting more vocal about their opposition to the deal, particularly with regard to the valuation of Cairn India.

Minority shareholders own close to 40 per cent in Cairn India; half of them need to approve the merger for it to be successful, according to new laws on related-party transactions. At the time of the merger announcement, it was widely believed that London-listed Cairn Energy Plc, which holds 9.82 per cent in Cairn India, would go along with the deal. However, a recent report by Financial Times quoted sources close to the development saying that Cairn Energy is likely to give the deal a thumbs down.

Assessing pros & cons

Cairn Energy Plc said in a statement, “We are not commenting on the recent media reports. We continue to assess whether the proposed merger is in the interests of Cairn Energy Plc as a shareholder in Cairn India Ltd.” Vedanta did not reply to queries from BusinessLine .

LIC, which holds another 9.06 per cent and is the second largest minority shareholder, has also expressed reservations regarding the deal’s terms. Vedanta Chief Executive Tom Albanese told Reuters that the company was engaging with all minority shareholders. “In all cases, with every shareholder, we have had the engagement, as you would expect we would. In all cases, people recognise that it is still very early to make a decision,” Albanese said.

Cairn India’s stock, which began to fall following the announcement, bounced back over 6 per cent on the BSE on Thursday on rumours that the merger would fall through. An analyst note from CLSA added 74 per cent of Cairn Energy’s current value comes from its 9.8 per cent stake held in Cairn India.

Shriram Subramanian, Managing Director, InGovern, a proxy advisory firm, said the merger would test the strength of new laws on related-party transactions in India and the new powers given to minority shareholders.