In a bid to salvage the merger of cash-rich oil firm Cairn India with its debt-laden parent Vedanta Ltd, the billionaire Anil Agarwal-led group on Friday sweetened the deal by offering three additional preference shares in hope of winning over minority shareholders like LIC.
The $2.3 billion all-share transaction was originally announced on June 2015 and the deal to create India's largest diversified natural resources firm, which could compete with BHP Billiton Ltd and Vale SA, was to close in March this year. But a lingering retrospective tax issue and winning over half of the minority shareholders including LIC, which was said to be opposed to the deal, proved to be a stumbling block.
Today, Vedanta offered minority shareholders of Cairn India one equity share and four redeemable-preference shares with a face value of Rs 10 each. The preference shares will carry a coupon of 7.5 per cent and tenure of 18 months. The revised deal implies a 20 per cent premium to the one-month volume weighted-average price of Cairn shares, a joint statement by Cairn and Vedanta Ltd said. Vedanta is said to be wanting to use Rs 23,290 crore cash lying with Cairn to pay off part of its Rs 77,952 crore debt.
It had in May rolled over a controversial $1.25-billion loan taken from the cash-rich oil explorer Cairn India in July 2014. Vedanta Ltd is India's most-indebted base metals company. But the merger can go through only when 9.82 per cent shares that the oil explorer's erstwhile parent Cairn Energy plc holds in Cairn India are freed by Income Tax Department.
Income Tax department had frozen the shares in pursuit of a Rs 29,000-crore tax demand on alleged capital gains made by Cairn Energy in 2006 when it transfered its India business into a new subsidiary Cairn India and listed it on stock exchanges.
Cairn Energy sold majority stake in Cairn India to Vedanta in 2011 but retained a minority shareholding. Also LIC, which holds 9.06 per cent in Cairn India, has to come on board. The insurer was opposed to the deal in the form it was proposed in June last year. For the merger to go through, half of the minority shareholders, who together make up for 40 per cent of the Cairn equity, have to approve the deal.
And Income Tax Department has previously said the freeze on Cairn Energy shares can be lifted if a collateral of an equivalent to their market value is offered. Shareholder meetings of Vedanta Ltd and Cairn India will be convened on September 8 and September 12, respectively to get a minority vote on the merger.
"The simplified corporate structure will better align interests between all shareholders for the creation of long- term sustainable value," Agarwal said in the statement.