Stock Market

Cairn India shareholders approve merger with Vedanta

In a move that would removes the last major hurdle in the way of a mega merger between Vedanta and its group firm Cairn India , public shareholders of Cairn India have voted overwhelmingly in favour of the deal.

In an exchange filing, Cairn said that in a court-convened meeting, 65.41 percent of shareholders present, representing 92.86 percent in value, voted in favour of the merger.

The scheme has also been approved by a majority of the minority shareholders. The public shareholders of the company have casted 72.43 percent of votes (in value) in favour of the resolution.

As per company law, the approval of a majority of minority shareholders was required for the deal to go through.

“I am pleased that the shareholders of Cairn India have approved the merger of Cairn India with Vedanta Limited,” said the company’s Chairman Navin Agarwal. “We are confident that the financial strength and diversified portfolio of Tier‐I assets of the merged company, with strong growth potential, will provide de‐risked earnings and stable cash flows and drive long‐term value.”

The approval took place after Vedanta had to sweeten the initially-proposed merger ratio of 1:4 by adding four preference shares in favour of Cairn shareholders. Public shareholders LIC and Cairn India’s erstwhile parent Cairn Energy had expressed reservations about the initial merger ratio.

Below is the verbatim transcript of Rakesh Arora, JN Gupta and Hetal Dalal’s interview to Nisha Poddar and Kritika Saxena on CNBC-TV18.

Kritika: 99.76 percent of public non-institution shareholders have voted in favour of the merger and as far as the public institutions are concerned 55.7 percent have voted in favour of the merger. Your initial thoughts?

Gupta: This is on expected lines because if you look at what was the deal one year back and what is the deal today, so at least the Cairn shareholder are getting Rs 30 more in the form of preferential shares, as also they are getting we have seen they are getting exposure to the bigger cake although a smaller share, but they are getting exposure to the bigger cake.

From the Cairn’s shareholder perspective this is the right thing. However, as we have already written in our report that we did not find anything wrong with the merger. It is in the interest of both the shareholders, the only thing is it was a lack of transparency so the company could not explain the reason why it has changed from 1 Vedanta share plus 1 preference share to 1 Vedanta share and 4 preference share.

Kritika: If you are assuming the 92.86 percent number, can we very safely say that Cairn Energy has voted in favour?

Gupta: I think there is a very clear indication to take it, but it has to be seen you have to look into the institutional shareholder, because I do not have the data. Now Cairn Energy may come under the public it is not an institution.

Kritika: 55.7 percent of public institutions have voted in favour.

Gupta: We have to see whether Cairn Energy has been classified as a public institution or they have been classified as a public shareholder. If you see the data and match the shareholding, but in likelihood they have voted, but in that case then LIC must have voted against, because a substantial portion has not been voted. Either way you have to see or maybe LIC and Cairn both have voted in favour but other institution has not voted. This is a guesswork that we will have to do unless until we have got the complete numbers.

Nisha: This is going to be a thumps up for Vedanta as a group. How do you see the stock now reacting come Wednesday, because all the stocks were falling today it was very difficult to gauge the kind of reaction on only Cairn India and Vedanta, because the whole market were on a freefall. How you are expecting the stocks to really behave going forward on Wednesday?

Arora: First of all, I think this deal is important for Vedanta. It helps them to improve their ratios in terms of debt coverage and also the balance sheet becomes much more stronger, so to that extent it is very positive. The immediate impact may not be there, because lot of expectation is already there in the market and people were hoping that this will go through, because LIC was making some positive noises over the weekend, but nonetheless I think the stock should trade with a little bit of positive bias when we open day after tomorrow.

Nisha: But of course metal and mining space is going through a lot of turmoil right now, the cash that Cairn India balance sheet really brings in will really go a long way in helping out Vedanta on the whole. How do you see the capex going forward and also the metal and mining business now performing going forward, because now it becomes a diversified portfolio with really a lot of cash coming in, so earnings before interest, taxes, depreciation, and amortization (EBITDA) positive when it comes to Vedanta on the whole as well?

Arora: See, I don’t think at these valuations its earnings per share (EPS) accretive for Vedanta, so it is more qualitative change on the balance sheet and I don’t think any metal companies looking to do capex of any kind. I don’t think capex profile will change, but it eases their cash flow situation, otherwise they were holding all the debt in Vedanta and cash flows were stuck in subsidiaries Hindustan Zinc and Cairn India.

Kritika: You heard Nisha talk about the synergies and what lies ahead, your initial reaction 92.8 percent have said yes. If at all there have been any no’s or any untendering of their vote it’s the institutional shareholders who had about 49 percent and about 55.76 percent of public institution. Would there have been any concerns from these accounts?

Dalal: Let me just come to the larger picture, see today was a court convened meeting where the promoters voted their shares. Promoters owned 60 percent of Cairn India and they voted their shares and the resolution was passed. Sure, we understand that this is always being tricky in terms of some shareholders not being happy with the transaction and some being okay with it.

What is critical for this Cairn-Vedanta transaction is what happens tomorrow. Tomorrow is when the results of the postal ballots are announced and this is a postal ballot where the promoters can’t vote their shares and therefore the transaction has to be approved by the majority of the minority and this is where it becomes critical. The institutional investors or the retail public, which votes against vis-à-vis those that votes for that really going to swing the vote, that’s really was going to be critical as far as does the transaction completely goes through or not.

Kritika: You had a positive view on this particular deal, IIAS as an advisory firm had a positive view, while there was another advisory firm which did not have such a positive view. What was the reason that really drove your factors that you had put in for giving a nod for this deal and also advising in favour of this?

Dalal: You are right we supported that transaction our view was that there were enough synergies between the two companies. Given the fact that both the businesses are reasonably volatile, it helps to have a more diversified business profile and to that extent, we think the merger is good for both sets of shareholders. The issue really is always about price, especially where you have volatile businesses which are volatile and that what also as stock prices which have sharp swings. The issue comes on to price given the fact that the management sweetened the deal the second time around, therefore we felt that transaction was good for both sets of shareholders.