Can Cairn India merge with Vedanta?

Yesterday, shares of Vedanta, formerly known as Sesa Sterlite, gained almost 3 percent from Rs 179.50 to Rs 184.40 in BSE and shares of Cairn India tanked almost 5 per cent to touch six year low of Rs 170.60. It is a result of media speculation regarding merger possibility of Cairn India and Vedanta.

Earlier, media broke the news that Vedanta’s CFO D. D. Jalan and Group Director of Finance, Tarun Jain, will meet three banks primarily - Bank of America, Standard Chartered Bank and Barclay's this week in connection with the merger that is expected by March 2016. Vedanta’s chairman, Anil Agarwal, will also take part in the meeting. The meeting will be held in New Delhi. The Board of the Directors of the two companies will have to approve the deal.

The merger would help Metal and Mining Firm, Vedanta, to become a global major and compete with companies such as Rio Tinto (a British-Australian multinational metals and mining corporation headquartered in London.) and BHP Billiton (an Anglo-Australian multinational mining, metals and petroleum company headquartered in Melbourne, Australia).For the financial year ended on March 2015, Vedanta and Cairn India took a hit on their bottom lines due to the impairment charges Cairn had to bear on account of falling oil prices. Vedanta, which is formerly known as Sesa Sterlite holds 18.73 percent promoter stake in Cairn India. On 3rd June 2015, Vedanta acquired 4.98 per cent in Cairn India from Twinstar Mauritius Holdings, an unlisted subsidiary, for a cash consideration of USD 315 million, which has increased the holding of Vedanta in Cairn India to 24 percent from 18.73 per cent earlier.

Vedanta’s management clarified BSE that "they should note the media speculation regarding a potential merger with Cairn India”. They stated that the strategy is to simplify and consolidate its corporate structure. Managements review such options to deliver the strategy on an on-going basis.

Vedanta also clarified BSE that “They are aware of the Company’s disclosure obligations under Clause 36 of the listing agreement(Clause 36, in its present form, requires a listed entity to disclose to Stock Exchange(s), details of all events which will have bearing on the performance/operations of the listed entity as well as 'price sensitive’ information). The Company will abide by its obligations to make appropriate disclosures as and when such disclosures are necessitated by decisions taken by the Company."