Mumbai, Aug. 16: Metals and minerals magnate Anil Agarwal today sealed a deal to acquire a majority stake in oil and gas explorer Cairn India Ltd.

Agarwal’s Vedanta group will acquire 51-60 per cent in the company for $8.5-$9.6 billion in cash.

The deal will be structured in such a manner that London-based Vedanta Resources and group company Sesa Goa Ltd will hold stakes in Cairn India.

Vedanta will directly hold 31-40 per cent of Cairn India from its Edinburgh-based parent, Cairn Energy Plc.

Sesa Goa will make an open offer to acquire another 20 per cent of Cairn India’s equity.

Under the terms of the deal, Cairn Energy will make up for any shortfall in the open offer up to 11 per cent. This will ensure that Sesa Goa has a 20 per cent stake in Cairn India.

If Sesa Goa’s open offer is able to corner only a 9 per cent stake, Cairn Energy will sell 11 per cent to Vedanta, which will later be picked up by the iron ore miner.

On the other hand, if the open offer fails to elicit any response, Vedanta will sell its 9 per cent to Sesa Goa, while Cairn Energy will sell another 11 per cent.

Non-compete proviso

Vedanta is acquiring the Cairn India shares at a price of Rs 405 a share — which includes Rs 355 apiece for the stake buyout and a payment of Rs 50 per share by way of a non-compete fee to Cairn Energy Plc.

Under the terms of the non-compete agreement, Cairn Energy will stay away from oil and gas exploration in India, Pakistan, Sri Lanka and Bhutan.

The Cairn India stake sale is subject to government and regulatory approvals.

Although Vedanta will be paying Rs 405 per share to Cairn Energy, shareholders of Cairn India will be offered only Rs 355 per share in the open offer — which could run foul of Sebi’s takeover rules.

This could be termed as discriminatory since any transaction between Sesa Goa and Vedanta to make up for the shortfall in the open offer will be struck at a price of Rs 405 per share.

There have been instances in the past when the Securities and Exchange Board of India has asked acquirers to pay the extra amount (non-compete fee) to the shareholders.

The stock markets clobbered the Cairn India stock because of the discriminatory pricing of the share. On the Bombay Stock Exchange, the stock tumbled 6.36 per cent, or Rs 22.60, to close at Rs 332.85.

Sesa Goa’s participation in the group’s attempt to acquire Cairn India did not go down well with the markets. With a huge chunk of its cash going towards the open offer, the Sesa Goa stock crashed 8.90 per cent to Rs 322.55.

The transaction is likely to be completed by the first quarter of the next calendar year. It will be funded through a mix of debt and internal accruals. Vedanta Resources will take bank debt facilities of up to $6.5 billion and Sesa Goa will bring in $3 billion, largely through internal accruals. The iron ore miner has cash and cash equivalents of over $2 billion.

There is also a put and call option exercisable after July 1, 2012 and July 1, 2013, wherein 5 per cent each of Cairn India’s equity can be sold to Vedanta.

Navin Agarwal, vice-chairman of Vedanta Resources, told reporters during a conference call out of London that the deal would create an “Indian natural resources champion” with a comprehensive footprint across the country’s resources sector. He said there would be no impact on the existing expansion programmes of the group. He added that Sesa Goa would now get a world class asset with significant growth potential.