Last updated: August 16, 2010 2:00 pm

Vedanta to take Cairn India stake

Vedanta Resources, the London-listed Indian mining group, is to take a majority stake in Cairn India for up to $9.6bn (£6.17bn) in cash in a deal that would give it control of one of India’s biggest onshore energy assets.

In a statement, Vedanta, India’s largest mining company, said it would purchase between 51 and 60 per cent of Cairn India, which is 62.4 per cent owned by Cairn Energy, for between $8.5bn and $9.6bn, potentially providing a huge multibillion pound windfall for shareholders of the British oil explorer. The deal values Cairn India at $16.6bn.

Vedanta will pay Cairn Energy Rs405 ($8.64) a share for up to 51 per cent of Cairn India’s shareholdings, a 21.8 per cent premium over the stock price on August 11, the day rumours of the proposed deal began circulating.

However, the precise number of shares Vedanta will acquire from Cairn Energy will depend on the take-up of an open offer Vedanta will make along with its subsidiary Sesa Goa.

Vedanta’s billionaire founder, Anil Agarwal, said the acquisition of Cairn India would be a “unique investment” that would “enhance Vedanta’s position as natural resources champion in India”.

If the deal goes ahead, Vedanta would be only the second diversified mining group in the world, after BHP Billiton, to move into energy production. However, the acquisition must still be approved by the Indian government, which some analysts said could have reservations about allowing a company with no track record in energy to take over such a crucial energy asset.

Cairn India’s Rajasthan fields, which began production a year ago after years of exploration and development, are the biggest onshore energy resource discovered in the past two decades in India, which relies on imports for about 70 per cent of its energy needs.

Officials have also suggested that state-owned Oil and Natural Gas Corp, which is a partner in the Rajasthan development, may have the right of first refusal over any share sale.

Under the proposal, Vedanta Resources would hold 31 to 40 per cent of Cairn India directly, while Vedanta’s subsidiary Sesa Goa would hold 20 per cent.

Vedanta’s Rs405 purchase price for the shares from Cairn Energy also includes a Rs50 a share non-compete fee in exchange for the British oil explorer agreeing not to engage in any oil and gas exploration or extraction in India or neighbouring countries for three years.

Vedanta said it hopes the deal will be completed by the first quarter of 2011.

JPMorgan Cazenove is advising Vedanta, while Cairn Energy is being advised by NM Rotschild

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