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Vedanta set for next tiff with shareholders on Cairn merger

Santosh Nair

Cairn India shares have been under pressure ever since reports of a likely merger with parent Vedanta (formerly Sesa Sterlite) started doing the rounds early this week. Analysts and Cairn India shareholders feel such a merger would be unfavourable to Cairn India, as the cash in its books may be used for repaying Vedanta’s debts. This will leave Cairn India with less cash for its own capex and dividends. Also, Cairn India shareholders’ returns will depend on the fortunes of a motley bunch of metals—not just crude—if the merger goes through.

There has been no word from institutional investors so far; they could be waiting for a formal announcement from the companies before taking a stand. It is likely that most of them may not be too happy at the prospect of a merger also because of the timing.

Cairn India shares have fallen around 50 percent over the last one year because of the downtrend in crude oil prices.

Should Vedanta  propose a merger, the ensuing howls of protest from Cairn India ’s minority shareholders will be nothing new to the promoters.

Over the years, the Anil Agarwal group has had frequent run-ins with minority shareholders, from the time it was known as Sterlite Industries. To the shareholders’ credit, they have put up a good fight every time and managed to block a few proposals unfavourable to them in the past.

But of late, it is the management which has been winning.

Barely a year back, Cairn India shareholders were irked when they learnt that their company had decided to loan USD 1.25 billion to the Vedanta Group for two years. The disclosure was made after Cairn India had already disbursed USD 800 million.

There have been other instances as well of disagreements with minority shareholders of group companies.

(Mentioned below are excerpts from an article on the Vedanta group that appeared on the moneycontrol website in July last year)

In 2012, Vedanta’s move to merge Sterlite Industries, Sesa Goa and three other unlisted group firms too faced resistance from a section of institutional investors, who felt shareholders of Sterlite and Sesa Goa were getting a raw deal as they would have to shoulder a higher share of the group’s debt. The merger eventually did go through.

In 2008, minority shareholders of Sterlite, led by institutional investors forced the company to shelve a restructuring proposal that would have resulted in a lower stake for them in the company’s core mining assets, in return for a piece in parent Vedanta’s unproven copper mine in Zambia.

In May 2001, the company (then Sterlite Industries) tried to delist through a buyback offer at Rs 150 a share (Rs 100 of it in cash and the rest in secured non-convertible debentures, redeemable in the fourth, fifth and sixth years). Sterlite mailed shareholders the cheques worth Rs 100 per share, and unless they wrote in saying they were opposed to the plan, it would be taken as a ‘yes.’ Also, shares would be swept out of investors’ depository accounts if they had either cashed the cheques or failed to mail in their dissent when the scheme closed. The proposal met with stiff resistance from the shareholders, and was defeated.

Two years later, the company again tried to delist through a restructuring proposal, which involved hiving off the copper business into an unlisted arm. This proposal too angered minority shareholders as they felt the company was trying to buy them out on the cheap. Sterlite’s second attempt flopped just as the one before it.

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