Merger of Vedanta Limited and Cairn India Limited

India’s Leading Diversified Natural Resources Company

Vedanta Limited, Cairn India Limited (“Cairn India”) and Vedanta Resources plc (“Vedanta plc” together with its subsidiaries, the “Group”), today announce a merger between Vedanta Limited and Cairn India (the “Transaction”).
Key Highlights

• Minority shareholders of Cairn India will receive for each equity share held:
  • 1 equity share in Vedanta Limited
  • 1 redeemable preference share in Vedanta Limited with a face value of INR 10
• Implied premium of 7.3% to the previous close.
• Strategy remains unchanged, with continued focus on delivering attractive growth, sustainable development and long-term value for all shareholders.
• Commitment to growth and to sustain strong dividend distribution.
• Completion expected in first quarter CY 2016

Mr Anil Agarwal, Chairman of Vedanta plc, said:

“The merger of Cairn India and Vedanta Limited consolidates our position as India’s leading diversified natural resources champion, uniquely positioned to support India’s economic growth. The independent Directors, at both Vedanta Limited and Cairn India, unanimously recommend the proposed combination. This marks a significant step towards achieving our stated long term vision of a simplified group structure with alignment of interests between all shareholders for the creation of long term sustainable value.”

Mr Tom Albanese, CEO of Vedanta Limited, said:

“This transaction consolidates our portfolio of Tier-I assets which, combined with strong management, will deliver superior returns for all shareholders. It will result in improved financial flexibility to allocate capital to the highest return projects and sustain strong dividends. The combined entity is uniquely positioned to help unlock India’s wealth of world-class energy and mineral resources.”

Mr Mayank Ashar, CEO of Cairn India, said:

“The merger with Vedanta Limited will generate additional value for our shareholders and de-risks Cairn India by providing access to a portfolio of diversified Tier-I, low cost, long-life assets, to deliver significant near term growth. Our Rajasthan fields continue to remain our core asset. The financial strength of the enlarged group will ensure greater access to capital to further Indian oil & gas development.”

Strategic Rationale

• Diversified Tier-I portfolio de-risks earnings volatility and drives stable cash flows through the cycle.
• Improved ability to allocate capital to the highest return projects across the portfolio.
• Greater financial flexibility to sustain strong dividend distribution.
• Cost savings and potential re-rating to benefit all shareholders.
  • The Transaction will contribute to further the streamlining of internal processes and improved productivity, beyond the previously announced $1.3 billion.
• Stronger balance sheet will allow for the overall cost of capital to be reduced.
• Consistent with stated corporate strategy to simplify the Group structure.
• Offers long term sustainable value enhancement for all shareholders.

Benefits for Cairn India Shareholders

• Attractive transaction terms.
• Earnings will be de-risked through increased diversification, offering exposure to a larger, more resilient and more diversified commodity mix.
• Stable cash flow supporting investment and dividends through the cycle, driving long term value.
• Offers Cairn India shareholders exposure to Vedanta Limited’s well invested Tier-I, structurally low cost, longer-life assets, including a best-in-class zinc platform, which have significant latent capacity ramping up.
• Being part of a larger entity will allow Cairn India to benefit from increased economies of scale and improved free float and trading liquidity.
• The large equity share component allows Cairn India shareholders to participate in the upside potential at Vedanta Limited as a result of the attractive growth profile and delivery of Vedanta Limited’s ongoing cost saving initiatives.
  • Increased participation in Vedanta Limited’s previously announced $1.3 billion marketing and procurement cost saving program.
• Retains proven management team and decision-making framework, retaining the Cairn India brand.

Proposed Transaction

• Merger of Cairn India into Vedanta Limited through a Scheme of Arrangement under Indian law.
• On completion, minority shareholders of Cairn India will receive for each equity share^[1] held:
  • One equity share in Vedanta Limited of face value INR 1 each
  • One 7.5% Redeemable Preference Share (“RPS”) in Vedanta Limited with a face value of INR 10 each
• No shares will be issued to Vedanta Limited or any of its subsidiaries for their shareholding in Cairn India.
• RPS would have the following key terms:
  • Dividend of 7.5% per annum payable annually at the end of each financial year^[2]
  • Tenure – 18 months from issuance
  • Redeemable at face value of INR 10 per share for cash at the end of the tenure

– Vedanta Limited will arrange for a third party facility enabling a cash exit for RPS holders at par within 30 days from issuance

Recommendations, Financial Advisers and Fairness Opinions

The non-conflicted, independent members of the Board of Directors of Vedanta Limited, Cairn India and Vedanta plc have unanimously approved the merger as being in the best interests of their respective shareholders.

Furthermore, independent sub-committees of non-conflicted members of the Boards of Directors of Vedanta Limited and Cairn India have been established to oversee the Transaction.

Independent valuers, Price Waterhouse & Co LLP and Walker Chandiok & Co LLP, have provided their joint recommendation on the exchange ratio for consideration by the Boards of Vedanta Limited and Cairn India.

Lazard & Co., Limited has acted as financial advisor to Vedanta Limited in relation to the Transaction and the Board of Directors of Vedanta Limited have received a fairness opinion from Lazard India Private Limited with regard to the fairness of the exchange ratio to Vedanta Limited, from a financial point of view.

The Board of Directors of Cairn India has received opinions from DSP Merrill Lynch Limited and JM Financial Institutional Securities Limited as to the fairness of the exchange ratio to Cairn India, from a financial point of view.

J.P. Morgan Cazenove and Morgan Stanley are acting as joint financial advisors and joint corporate brokers to Vedanta plc in relation to the Transaction.

Transaction governance is in line with Indian and UK regulations and best practices.

Key Transaction Approvals

• Vedanta Limited and Cairn India shareholder approvals:
  • Majority of the minority shareholders voting.
  • At a separate High Court directed meeting:

– Majority in number of shareholders voting at the shareholder meeting, required to vote in favour of the Transaction; and

– 75% in value of shareholders present and voting at the shareholder meeting required to vote in favour of the Transaction.

– Vedanta plc and Vedanta Limited can vote at the meetings for Vedanta Limited and Cairn India, respectively.

• Vedanta plc shareholder approval:
  • Simple majority of holders present and voting at the shareholder meeting required to vote in favour of the Transaction.
• Ministry of Petroleum & Natural Gas
• Jurisdictional High Courts where the registered offices of Vedanta Limited and Cairn India are situated.
• BSE, NSE and the Securities and Exchange Board of India.
• Foreign Investment Promotion Board.
• Regulatory and other approvals as may be required.

1. Of face value INR 10 per share

2. Dividend payment in each financial year is pro-rated for the tenure for which the RPS are outstanding during that financial year.

[“source-prnewswire.com”]