Markets Give Thumbs Down To ‘Sterlite Sesa’ Merger

As per a press release filed with the Bombay Stock Exchange (BSE), the transaction would involve the merger of Sterlite into Sesa Goa by issuance of three shares of Sesa for every five shares of Sterlite, thereby forming a new entity called ‘Sesa Sterlite.’ Moreover, Vedanta’s group companies, Vedanta Aluminum (VAL) and Madras Aluminum Company (MALCO), will be 100 per cent consolidated into Sesa Sterlite. The big highlight is the transfer of Vedanta’s 39 per cent stake in Cairn India to Sesa Sterlite along with the latter’s associated debt of USD 5.9 billion.

Though the above move by Vedanta Resources Plc aims to make Sesa Sterlite the seventh-largest global diversified natural resources major by EBIDTA, the markets’ seemed to have given a thumbs down to the merger announcement.

While shareholders of the London-listed Vedanta Resources Plc have much to cheer about (VED:LN up by 3.6 per cent) as the proposed merger would bring about a world of synergies for them going forward, the shareholders of Sesa Goa have been disappointed with the outcome of the deal. Consequently, Sesa Goa is seen trading down by nearly 10 per cent at Rs 204 a piece. Even the shareholders of Sterlite haven’t taken too kindly to the development as its shares are down by nearly 2 per cent at Rs 117 per share.

While the arbitrage opportunity arising out of the merger deal can be accounted for as one of the chief reasons for the fall in the share price of Sesa Goa, investors have also been put off by the fall in the share of iron ore to the overall of EBIDTA of Sesa Sterlite to 17 per cent from pre-merger contribution of 99 per cent in Sesa Goa. Post merger the company would predominantly be known for its expertise in the business of oil & gas followed by zinc and iron ore, with the likes of aluminum copper and silver making up a minute portion.

Investors would also fret over the synergy between Sesa Goa (ferrous) and Sterlite (non-ferrous) as both are into different businesses.