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Friday , April 8 , 2011
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Cairn extends deal deadline

Mumbai, April 7: Cairn Energy Plc and Vedanta Resources today extended the deadline for the completion of their $9.6-billion stake buyout deal to May 20. The earlier deadline was April 15.

The two companies were forced to extend the deadline by 45 days after the CCEA decided yesterday to lob their plea for government approval to a group of ministers, nixing any prospect of closing the deal by the earlier deadline.

The two companies were also forced to scrap several conditionalities that were built into the agreement they struck last August.

The two companies have dropped the put and call options that Cairn and Vedanta could exercise. Both the parties had put and call options that could be exercised after July 1, 2012 and July 1, 2013, wherein 5 per cent each (in two tranches) of Cairn India’s equity could be sold to Vedanta during these periods.

They also had to axe Vedanta’s pre-emption right that would have allowed it to corner any shares that Cairn later wanted to sell in the event that the ultimate buyer ended up with more than 20 per cent in the oil and gas explorer.

Sebi had said the two conditionalities did not conform to Indian regulations on acquisitions and would have to be dropped before it gave its approval to the open offer being funded by Sesa Goa, a group company in which Vedanta has a 70 per cent stake.

Under the deal, Sesa Goa will make an open offer to acquire 20 per cent of Cairn India’s equity, while Vedanta will hold between 31 per cent and 40 per cent of Cairn India.

The Anil Agarwal-holding company will acquire 40 per cent from Cairn Energy and the Edinburgh-based oil exploration company will make up for any shortfall in the open offer up to 11 per cent of Cairn India so that Sesa Goa’s holding touches 20 per cent.

After both the transactions are completed, Cairn Energy would end up with a residual interest of between 10.6 per cent and 21.6 per cent in Cairn India. Cairn Energy today maintained that it would have the same residual stake after these transactions were done.

“To meet Indian takeover regulations, the open offer must be made to the minority shareholders of Cairn India and completion of the open offer is a condition precedent to the transaction completing,” it said today.

The share price of Cairn India is now ruling below the open offer price of Rs 355 per share. The stock closed at Rs 344 on the BSE, a fall of 2 per cent from the previous close.

Procedural issues

However, the government is unlikely to clear the deal by May 20.

“The procedural constitution of the ministerial panel and the meetings of the GoM would take time … it is unlikely that the GoM would have met sufficiently by May 20 to decide on the issue by then,” senior officials said.

Officials said the government would not be in a hurry to decide the issue especially when the finance minister and other likely panel members would be busy campaigning for the party in the assembly polls, including in Bengal.

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