8/8/2019 v_n_c_report
1/21
VEDANTA plc & CAIRNIndia
Road Ahead
1
8/8/2019 v_n_c_report
2/21
WHAT A DEAL !
Vedanta to sign 3rd largest deal by Indian firm:
Mining giant Vedanta offered to buy Cairn Energys India ops
Vedanta Resources Plc, the mining company controlled by billionaire Anil Agarwal,
agreed to buy as much as 60 percent of Cairn India Ltd. For $8.5- $9.6 billion to gain
access to Indias biggest onshore oil field.Edinburgh-based Cairn said the deal would
result in a substantial return of cash to shareholders. It added it would also use the cash
from the proposed sale for other exploration and drilling programmes.
Vedanta Resources is emerging as an exceptional diversified mining company with a
world class resource base. The companys principal operations are in India, Zambia and
Australia. The major metals produced are aluminium, copper, zinc and lead.
Vedanta, which draws most of its revenues from India in mining and producing copper,
zinc and aluminium, may be the second global metals firm to expand into oil & gas after
BHP Billion to smoothen earnings fluctuations.
The proposed acquisition significantly enhances Vedantas position as a natural
resources champion in India. Cairn Indias Rajasthan asset is world class in terms of
scale and cost, delivering strong and growing cash flow
On 25th sep 2010, Govt seeks law ministry's advice on Vedanta deal.Cairn has written to
the petroleum ministry twice on the deal, after its chairman, Bill Gammell, was asked to
apply for approvals under the various production sharing contracts the company
signed with the government, while the government asked Cairn to apply for permission
under various PSCs The contract with Vedanta Resources Plc is at shareholder level of
Cairn India, involving sale of shares (and) there is no change to the Participating
Interest in any of the PSCs to which the Cairn India Group is party.
2
8/8/2019 v_n_c_report
3/21
Ever since the deal was announced on August 16, the petroleum ministry and ONGC had
been asserting it could not go through without their approval. The Edinburgh-based Cairn
Energy Plc decision to sell stake in Cairn India to the Vedanta group saw, ONGC
asserting its pre-emptive right on the blocks the two companies manage along with
companies.Though any chance of a counter-offer being made by ONGC has been ruled
out.
3
8/8/2019 v_n_c_report
4/21
Founded in 1976 by Mr. Anil Agarwal
Vedanta Resources plc is a diversified metals and mining company with revenues in excess of
US$6 billion based in London. They are the first Indian manufacturing company to be listed on
the London Stock Exchange. They have operating locations in India, Zambia and Australia.
They are headquartered in London and have over 30,000 employees including over 8,000
professionals worldwide. Vedanta group structure is as follows:
4
8/8/2019 v_n_c_report
5/21
VEDANTAS TIMELINE:
5
8/8/2019 v_n_c_report
6/21
Strategic Diversifications:
COMPANY YEAR RESOURCE
6
8/8/2019 v_n_c_report
7/21
Sterlite Industries 1988 Copper MALCO 1995 AluminumBALCO 2001 Aluminum
Hindustan Zinc Limited 2002 ZincKonkola Copper Mines 2004 Copper
Sesa Goa 2007 IronCairn India 2010 Oil
o In 1979, Mr. Anil Agarwal acquires, through a family firm, Shamsher Sterling
Corporation.
o In 1986, Sterlite Cables Limited, acquires the Shamsher Sterling Corporation
business and changes its name to Sterlite Industries (India) Limited.
o In 1988, Sterlite Industries (India) Limited makes an Initial Public Offering of its
Shares and Convertible Debentures.
o In 2000, MALCO acquires 38.8% interest in India Foils Limited.
o In 2001, ItAcquires a 51% interest in BALCO from the Government of India.
o In 2002, It Acquires a 26% interest in Hindustan Zinc Limited, from the
Government of India and a further 20% interest through an open market offer.
o In 2003, ItAcquires a further 18.9% interest in HZL following exercise of a call
option granted by Government of India. Also in 2003, It Becomes the first Indian
Company to list on London Stock Exchange.o In 2004, Vedanta Resources acquires 51% stake in Konkola Copper Mines in
Zambia
o In 2006, ItAcquires Sterlite Gold
o In 2007, Vedanta acquires 51% controlling stake in Sesa Goa Limited, India's
largest producer-exporter of iron ore
o August 2010, Vedanta Resources announces its plans to buy a Controlling Stake
in Cairn India Ltd.
Diversification into Oil:
7
8/8/2019 v_n_c_report
8/21
CAIRN ENERGY:
8
8/8/2019 v_n_c_report
9/21
Sir Bill Gammell current Chief Executive of Cairn energy
Cairn Energy plc, 1981, is a global oil and gas exploration company based in Edinburg, UK.
Proven Commercial Reserves of 247.4 million Barrels of Oil. They have Operational Interests in
Albania, Greenland, India, Nepal and Tunisia. It gets 95% of revenue from its Indian operations.
Cairn is expected to raise $8.48 billion from this stake sale.
CAIRN INDIA LTD.
9
8/8/2019 v_n_c_report
10/21
Rahul Dhir , CEO and MD Cairn India ltd.
Cairn India Ltd. Formed in 2006. Cairn Energy maintains a 62.36% stake in the company. Listed
on BSE and NSE on January 9, 2007 .In 2008, Govt. of Sri Lanka awarded an exploration
license in Mannar Basin to Cairn India Ltd.. Market Capitalization of 63,257 crores (as per
closing price on BSE on September 7, 2010)
Cairn Indias Asset Base:
Sales & Growth:
10
8/8/2019 v_n_c_report
11/21
Cash Flow from Operations:
VEDANTA-CAIRN DEAL
11
8/8/2019 v_n_c_report
12/21
The Vedanta Group has offered to acquire 40-51% stake in Cairn India.The Anil Agarwal-
managed, London-based Vedanta Resources on 16th august 2010, Monday entered the oil
sector, announcing that it will acquire stake in Cairn India, ruffling feathers of state-owned Oil
and Natural Gas Corporation
Price offered to promoters of cairn energy is 405/share (including 50 per share as non-
compete fee), where 22% is paid as premium.(Non Compete fee: The fee is paid by the acquirer
to the promoters of the target company for not entering the same trade, and such payments could
be as high as up to 25 per cent of the deal value)
Further, Vedanta has announced an open offer (from 11 Oct 10) of 20% stake in Cairn
India from minority shareholders which will be done by its group company Sesa Goa. The price
offered is 355 per share for the open offer. Total Consideration is from US$ 8.5bn to US$ 9.6bn.
Transaction consideration is payable on completion of the deal that is expected to be completed
by Q1 2011.
Spreading wings
Branching Out : Vedanta has been scouting for possible buys in the oil and gas sector for the
past two years, in an attempt to diversify from its core metal play.
Deep Pockets : With cash reserves of about $7.5 billion, Vedanta is seen well placed to pick up
a stake.
Digging Deep : Cairn Energy Plc is looking to raise funds for its plans to drill exploration wells
off the coast of Greenland.Options Open : Cairn Energy Plc is reportedly in talks with other companies, including large
Indian and global resource firms, as part of its plan to raise funds for future expansion.
12
8/8/2019 v_n_c_report
13/21
Chasing BHP Billiton:
With this deal, Vedanta is looking to become a company with the scale of something like BHP
Billiton. It shows the company wants to be become a major resources player. In a way, Agarwal
is following in the footsteps of Australian mining giant BHP Billiton, or even fellow NRI
Lakshmi Mittal, who had already tied up with Indias largest oil and gas company, ONGC, to
hunt for oil exploration assets overseas. Mittal has also revived plans to build a 9-million tonne
oil refinery in landlocked Punjab. Even the Tatas have diversified into oil via Tata Petrodyne.
CAIRN EQUITY HOLDINGS:
13
8/8/2019 v_n_c_report
14/21
Funding:
The Vedanta group had net cash and cash equivalents of $7.2 billion (Rs 33,120 crore) as on this
March, of which $3.13 billion (Rs 14,380 crore) was in the books of Sterlite Industries and $1.09
billion in Sesa Goa (another India-listed subsidiary). 20% has to be open offer by sesa goa.
Sesa Goa has cash reserve surplus, in addition to there planned capital expenditure. Sesa Goa
had no immediate plans to acquire any iron ore mines. This surplus was getting 5% return only.
So these cash reserves can be used for better returns. There is no lock-in period for Sesa go for
its investment Use of such reserve would not disturb future plans of sesa goa to buy other iron
mines.
Bank debt facilities of up to US$6.5bn, 2 Years tenure. Sesa Goa: US$3bn, primarily from
cash reserves. With the deal reaching advanced stage, Vedanta had already tied up close to $4
billion (Rs 19,000 crore) of funding from three leading banks. Goldman Sachs, Barclays and
JPMorgan have agreed to finance the deal via a combination of dollar and pound debt.
14
8/8/2019 v_n_c_report
15/21
Synergy and Benefits:
World class asset with significant growth potential
Participation in a controlling interest by Vedanta Group
Will benefit from the value created as part of the Vedanta group
Superior investment returns on surplus cash, Immediate EPS enhancement
Expansion programmed to 50mmtpa unaffected by this transaction
Demand for petroleum products is set to jump to 368 million tonnes a year by 2025, from
195 million tonne estimated in 2011-12, according to the government.
Unique natural resources champion
Doubling oil production in Rajasthan oil block in short term
Revenue generation for future growth:
Reinvestment
Sustainable development
Exploration opportunities:
Indian oil sector: under explored
35+ new sites have been identified
Challenges and hurdles:
Counter bids from ONGC, GAIL.
Under Regulation 25 of Sebi's Takeover Code, a company or entity can make a
competitive bid (in response to an open offer) within 21 days from the date of public
announcement of the open offer. With the deal being considered overvalued by most
experts, the chance of ONGC bettering the offer was unlikely.
Oil ministry approval under two conditions
protection of interests of ONGC and minority investors
Complete compliance with the production-sharing contract Cairn has with the
PSU
15
8/8/2019 v_n_c_report
16/21
Government concerns
Vedanta's lack of competence oil sector
Might end up hurting the promise for the sake of short-term gains
The deal requires approval from only Securities & Exchange Board of
India (SEBI) and Reserve Bank of India (RBI).
According to clause 28.2 of the model production-sharing contract, companies that have
acquired exploration blocks under the New Exploration Licensing Policy need to inform
the government of any change in shareholding pattern
SUMMARY OF TRANSACTION
Transaction Highlights
EXISTING
OPERATIONS
RAJASTHAN %
Cairn
(Operator)70.0
ONGC 30.0
CAMBAY
Cairn
(Operator)40.0
ONGC 50.0
Tata
Petrodyne10.0
RAVVA
Cairn
(Operator)22.5
ONGC 40.0
Videocon 25.0
Ravva Oil 12.5
16
8/8/2019 v_n_c_report
17/21
Cairn to sell a maximum of 51 per cent of Cairn India to Vedanta
Consideration of up to US $8,480m (INR 396,561m), based on US $8.66 (INR 405) per
Cairn India share
A premium of approximately 32 per cent to the Cairn India average closing price for 90
days prior to 14 August 2010
Put and call options, exercisable after July 2012 and July 2013, to ensure a majority
interest in Cairn India can be sold (exercisable at US $8.66 (INR 405))
Intention to return a substantial proportion of the proceeds from the transaction to Cairn
shareholders
Retained cash will provide Cairn with financial flexibility to pursue an active exploration
programme in its leading acreage position in Greenland and future growth opportunities
Continued exposure to Rajasthan through the retained shareholding in Cairn India
Completion expected in first month of 2011
The Proposed Transaction is expected to be implemented as follows:
Cairn UK Holdings Limited, a wholly owned subsidiary of Cairn, a maximum of 51 per
cent of the fully-diluted share capital of Cairn India at completion
Vedanta will make an open offer to Cairn India shareholders, at not less than INR 355,
for up to 20 per cent of the issued shares in Cairn India, in accordance with the
17
8/8/2019 v_n_c_report
18/21
requirements of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 (the Open Offer) (Cairn will not participate in the Open Offer)
The number of Cairn India shares capable of being sold to Vedanta by Cairn may be
scaled back depending on the results of the Open Offer, subject to a minimum of 40 per
cent of the fully-diluted share capital of Cairn India at completion being acquired
pursuant to the Proposed Transaction
Expected initial consideration of between US $8,480m (51 per cent sold) and US
$6,651m (40 per cent sold)
Completion of the Proposed Transaction will occur following the closing of the Open
Offer
FUTURE PLANS OF VEDANTA:
Support Cairn India in its E&P endeavors.
Support Govt. to build refineries
Has an uncanny ability to spot opportunities ahead of the curve. India is at an inflection
point. We are an emerging economy with 1.2 billion people and a huge importer of oil.
So, we are at the tip of an iceberg. Cairn will give us an opportunity to make an Indian
natural resources champion
18
8/8/2019 v_n_c_report
19/21
Many would argue the journey from bulk commodities to energy (coal, power and now
oil) is a natural progression. Its already in downstream energy with interests in power
generation, so picking up stakes in gas blocks could be backward integration to fuel his
power projects. Cairn was a natural step for us.
To create a diversified portfolio that can generate enough cash to fund complex
and large projects in cyclical businesses. Agarwal calls it his Four-Box Strategy: sweat
existing assets to become a low-cost producer; pump cash into greenfield and mega
brownfield expansions using modern technology and low capex; maintain a robust and
fully-funded balance sheet; and tap inorganic blue sky opportunities to leverage
homegrown skill sets
REFERENCES
19
8/8/2019 v_n_c_report
20/21
http://www.commodityonline.com/news/Mining-giant-Vedanta-to-buy-Cairn-Energy
%E2%80%99s-India
http://www.businessweek.com/news/2010-08-16/vedanta-to-buy-stake-in-cairn-india-for-
as-much-as-9-6-billion.html
http://www.hindustantimes.com/Vedanta-to-sign-3rd-largest-deal-by-Indian-
firm/Article1-587839.aspx
http://smartinvestor.in/market/story-38613-storydet-
Vedanta_gets_banks_nod_to_fund_Cairn_deal.htm
http://www.cairnindia.com/Media/PressRelease/16.08.10_Cairn_Vedanta.pdf
http://www.business-standard.com/taketwo/news/cairn-will-test-agarwals-4-box-
plan/408100/
http://www.vedantaresources.com/
http://www.cairnindia.com/Pages/default.aspx
http://lite.epaper.timesofindia.com/getpage.aspx?publabel=ET&city=Delhi
http://www.business-standard.com/india/news/govt-seeks-law-ministry%5Cs-
advicevedanta-deal/409125/
20
http://www.commodityonline.com/news/Mining-giant-Vedanta-to-buy-Cairn-Energy%E2%80%99s-Indiahttp://www.commodityonline.com/news/Mining-giant-Vedanta-to-buy-Cairn-Energy%E2%80%99s-Indiahttp://www.businessweek.com/news/2010-08-16/vedanta-to-buy-stake-in-cairn-india-for-as-much-as-9-6-billion.htmlhttp://www.businessweek.com/news/2010-08-16/vedanta-to-buy-stake-in-cairn-india-for-as-much-as-9-6-billion.htmlhttp://www.hindustantimes.com/Vedanta-to-sign-3rd-largest-deal-by-Indian-firm/Article1-587839.aspxhttp://www.hindustantimes.com/Vedanta-to-sign-3rd-largest-deal-by-Indian-firm/Article1-587839.aspxhttp://smartinvestor.in/market/story-38613-storydet-Vedanta_gets_banks_nod_to_fund_Cairn_deal.htmhttp://smartinvestor.in/market/story-38613-storydet-Vedanta_gets_banks_nod_to_fund_Cairn_deal.htmhttp://www.cairnindia.com/Media/PressRelease/16.08.10_Cairn_Vedanta.pdfhttp://www.business-standard.com/taketwo/news/cairn-will-test-agarwals-4-box-plan/408100/http://www.business-standard.com/taketwo/news/cairn-will-test-agarwals-4-box-plan/408100/http://www.vedantaresources.com/http://www.cairnindia.com/Pages/default.aspxhttp://lite.epaper.timesofindia.com/getpage.aspx?publabel=ET&city=Delhihttp://www.business-standard.com/india/news/govt-seeks-law-ministry%5Cs-advicevedanta-deal/409125/http://www.business-standard.com/india/news/govt-seeks-law-ministry%5Cs-advicevedanta-deal/409125/http://www.commodityonline.com/news/Mining-giant-Vedanta-to-buy-Cairn-Energy%E2%80%99s-Indiahttp://www.commodityonline.com/news/Mining-giant-Vedanta-to-buy-Cairn-Energy%E2%80%99s-Indiahttp://www.businessweek.com/news/2010-08-16/vedanta-to-buy-stake-in-cairn-india-for-as-much-as-9-6-billion.htmlhttp://www.businessweek.com/news/2010-08-16/vedanta-to-buy-stake-in-cairn-india-for-as-much-as-9-6-billion.htmlhttp://www.hindustantimes.com/Vedanta-to-sign-3rd-largest-deal-by-Indian-firm/Article1-587839.aspxhttp://www.hindustantimes.com/Vedanta-to-sign-3rd-largest-deal-by-Indian-firm/Article1-587839.aspxhttp://smartinvestor.in/market/story-38613-storydet-Vedanta_gets_banks_nod_to_fund_Cairn_deal.htmhttp://smartinvestor.in/market/story-38613-storydet-Vedanta_gets_banks_nod_to_fund_Cairn_deal.htmhttp://www.cairnindia.com/Media/PressRelease/16.08.10_Cairn_Vedanta.pdfhttp://www.business-standard.com/taketwo/news/cairn-will-test-agarwals-4-box-plan/408100/http://www.business-standard.com/taketwo/news/cairn-will-test-agarwals-4-box-plan/408100/http://www.vedantaresources.com/http://www.cairnindia.com/Pages/default.aspxhttp://lite.epaper.timesofindia.com/getpage.aspx?publabel=ET&city=Delhihttp://www.business-standard.com/india/news/govt-seeks-law-ministry%5Cs-advicevedanta-deal/409125/http://www.business-standard.com/india/news/govt-seeks-law-ministry%5Cs-advicevedanta-deal/409125/8/8/2019 v_n_c_report
21/21