Billionaire metal king Anil Agarwal-run Vedanta Resources is in talks to acquire a 51 per cent stake in upstream oil and gas company Cairn India in a $ 8-8.5 billion (about Rs 37,264-Rs 39,593 crore) deal, which may be announced on Sunday evening or Monday.
Cairn Energy Plc of the UK, which holds 62.37 per cent interest in the Cairn India, is eyeing a 20 per cent premium for transferring management control of the firm to Agarwal.
Cairn India chief executive officer (CEO) Rahul Dhir met petroleum secretary S. Sundareshan to apprise him about the ongoing negotiations as the deal will need the approval of the Indian government.
“All production-sharing contracts signed by companies for oil and gas exploration have provisions for government approval if some stake in the field or the company were sold,” Sundareshan said.
Dhir said he was not a part of the discussions that were being carried out Cairn's UK management.
“To me it looks like they (Cairn Energy Plc) are not exiting completely. I am not aware of the details. I am not part of those discussions,” he said.
Agarwal will be meeting Cairn Energy Plc chief executive Bill Gammell in London for the final round of talks.
According to sources, Cairn Energy has been talking to Vedanta for the last three weeks and Agarwal is looking for a majority stake.
If Cairn Energy was to sell a minority of 10 to 20 per cent stake, they would have done that on the stock exchange.
Moreover, it does not make sense for an investor like Vedanta to make portfolio investment, a source said.
Spokespersons of Cairn Energy and Vedanta declined to comment.
The two companies had on Thursday confirmed in separate but identical statements that they were in discussions about the possible sale of Cairn Energy's stake in its Indian unit to Vedanta. Dhir said Vedanta was the only company Cairn Energy was presently talking to.
Cairn has three producing oil and gas assets, including the Rajasthan oil fields and seven exploration blocks in India.
Oil and Nnatural Gas Commission (ONGC) has the first right of refusal in the producing assets.
However, in a similar deal, the government had earlier approved the transfer of Enron stake to British Gas in the western offshore Panna-Mukta oil and gas fields.
Cairn India owns 70 per cent stake in the Mangala oil field in the Rajasthan block, where the rest is held by public sector Oil and Natural Gas Corporation (ONGC) Ltd.
From the current market price of Cairn India, analysts are feeling that the offer price of Vedanta is on the higher side, though they see some long term benefits from the deal for Vedanta.
“The deal values the stock at 10-16 per cent upside, taking Cairn India's value to $ 15.7 billion from the current market cap of $ 14.4 billion. The lowerend valuation would imply per share valuation of ` 390, an upside of 10 per cent from current levels,” said Alok Deshpande, oil and gas analyst at Elara Securities (India).
On Friday, the Cairn India stock closed at Rs 355.45 on the Bombay Stock Exchange (BSE).
The higher-end of deal would imply a valuation of Rs 413 per share-an upside of 16 per cent from current levels.
Prayesh Jain, oil and gas analyst of IIFL, said, “We believe the deal would be on expensive side for Vedanta considering our current target price of RS 338 per share, based on the sum of the parts (SOTP) valuation.” However, considering the deal price, Jain believes there could be short-term uptrend in Cairn India's stock price, which can be used as a trading opportunity by investors.
The purchase would mark a shift in Vedanta's strategy of only focusing on core metals, mining and power generation.
Source: India Today