State-owned Life Insurance Corporation of India (LIC) which holds 9.06 per cent stake in Cairn India is closely examining the proposal to merge Cairn India with Vedanta and sought clarifications from the Vedanta Group about the terms and conditions of the deal.
Vedanta officials met LIC top brass on Tuesday, the second meeting the corporation had with officials of the Group which has proposed the Rs 14,720 crore merger deal. The proposal has to be examined by all the three different departments of the LIC — monitoring and account, risk management and research. When these departments are satisfied about various aspects of the proposed deal, we will inform the company about our decision before the AGM, LIC officials said.
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“LIC sought some clarifications on the merger … Vedanta has given the details,” said a source in LIC. It has asked for details on valuation criteria, method of fund utilisation and dividend on preference shares.
Cairn share price had plummeted by 52 per cent from the 52-week high of Rs 379 to Rs 180.75 on June 12 on the Bombay Stock Exchange. Analysts had said big stakeholders like LIC and Cairn Energy of the UK would lose out as the merger of Cairn is happening at a time when its share price had fallen over 52 per cent. “It’s against the interest of major shareholders. Vedanta seems to have speeded up the merger to take advantage of the price fall in Cairn,” said an analyst.
Apart from LIC, UK’s Cairn Energy Plc holds 9.82 per cent stake in Cairn India. Cairn Energy had in 2011 sold majority stake in Cairn India to Vedanta for $8.67 billion. The merger will fall if LIC along with Cairn Energy were to vote against Vedanta. The merger would require 75 per cent of the shareholders (by value) to be present at a shareholder meeting and vote in favour of the transaction. However, a data set from Prime Database shows in the last ten years of the 32 buybacks made through the tender route only 11 have failed. So Vedanta has statistics on its side.
Cairn India has Rs 16,867 crore of cash on its books, while Vedanta has debt of Rs 37,636 crore, leading to concern among minority shareholders about the cash that will become part of the new entity.
As part of the merger proposal, minority shareholders of Cairn India will receive for each equity share held one equity share in Vedanta and one redeemable preference share with a face value of Rs 10 at a coupon rate of 7.5 per cent. After the merger, Cairn India minority shareholders will hold 20.2 per cent stake in the merged entity, while Vedanta shareholders will own 29.7 per cent.