M&A Critique
Vedanta Cairn Merger Gain Consolidation

Minority Shareholders force Vedanta to sweeten the Deal

The fog is slowly getting lifted off the Vedanta Cairn Merger deal. Announced a year ago, a merger of cash-rich Cairn India Ltd into debt-laden Vedanta Ltd. is finally back on track. After a strong opposition from minority shareholders of Cairn, Board of the Vedanta, in their meeting held on July 22, 2016, has approved a revision of term, appointed date and accounting treatment.

Earlier Terms

On completion, minority shareholders of Cairn India will receive for each equity share held will get:

  • One equity share of Vedanta Limited of face value INR 1.
  • One 7.5% Redeemable Preference Share (RPS) in Vedanta Limited with a face value of INR 10 each.

RPS would have the following key terms:

  • Dividend of 7.5% per annum payable annually at the end of each financial year
  • Tenure – 18 months from issuance
  • Redeemable at face value of INR 10 per share for cash at the end of the tenure
  • Listed on the NSE

Earlier the Appointed date was 1st April 2015.

Revised Terms

Pursuant to the revised and final terms, each Cairn minority shareholder will receive each equity share held:

  • One equity shares in Vedanta Limited
  • 4 Redeemable Preference Shares with a face value of INR 10 each in Vedanta Limited, with a coupon of 7.5% and tenure of 18 months from issuance.

Check out our Detail Analysis of Vedanta Cairn Merger


Reason for Revision

In 2015, Vedanta announced the merger of its cash-rich subsidiary Cairn India to expand its product portfolio of the company, simplification of group structure and most importantly to give Vedanta unfettered access to the around INR 17,000 crore cash reserves held by debt-free Cairn India. However, soon after the announcement, the deal was opposed by many minority shareholders of Cairn India on the grounds of unfair exchange ratio. Life Insurance Corporation of India (LIC) which is currently holding 9.06% in Cairn India opposed the merger which further added a problem to Vedanta.

Meanwhile, improvement in commodity prices and strong opposition from minority shareholders prompted Vedanta to amend the terms of the deal.

Table 1: Financials (All figures in INR Crores)

Particulars Vedanta (Consolidated) Cairn
Revenue 63,931 8,625
EBIT 7,997 257
Total Debt 71,356
Cash & Cash Equivalent 50,204 17,439
Note:- Vedanta’s financials are including Cairn.


Figure 1: Price Changes of Vedanta, Cairn and S&P indices. (Source: BSE)

Though, as on 28.07.16 (Refer Table 2), it looks like Vedanta is paying a premium of approx. 7% on the value of Cairn share price, the actual case is pretty different. As on 31st March 2016, cash per share available to Cairn shareholders was INR 93. Cairn India’s subdued performance was mainly on account of drastic fall down in the crude oil prices globally. Considering payment of INR 40 (Value of 4 preference shares) to each shareholder of Cairn, the bettering of the deferred cash payout translates into giving away about INR 3350 crore (Including interest for 1.5 years) of Cairn India’s cash to its shareholders against the earlier cash flow of INR 840 crore. The pay-out is approx. 19% of Cairn’s cash pile.

Table 2: Listed Prices of Vedanta and Cairn (Source: BSE)

Particulars Amount
Market Price of Vedanta as on 28.07.16 168
Market Price of Cairn as on 28.07.16 194
Preference shares value to be received by Cairn shareholder 40
Gain 7%

Post- Merger, Cairn minority shareholders will hold 20.2% in the merged entity.


The merger of Vedanta-Cairn is surely going to be a landmark deal with a view of minority shareholders. Though Cairn is a subsidiary of Vedanta, minority shareholders forced the promoters to change the valuation. In many cases, minority shareholders are depressed by the promoters. However, in Cairn all minority shareholders including LIC came together and forced the promoters for revision. Going forward, this will give all the public shareholders a confidence that if promoters are doing something which is unfair to them, they can fight for it.

Now it will be interesting to see whether the revised offer is enough to help the merger sail through. Now the ball is in the court of investors who will decide “Vedanta’s Cairn gain”.

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Aniruddha Jain