Analysis of Cairn Indian and Vedanta Merger

Analysis of Merger of Cairns India & Vedanta Ltd

Vedanta is the parent company of cairns India. Vedanta is mostly interested in cairns energy who value approx. 62.5% of cairns India with 8.5 billion USD

June 4, 2015 – Vedanta Ltd, formerly known as Sesa Sterlite Ltd/ Sesa Goa Ltd, on Thursday said it has acquired a 4.98 per cent stake in Cairn India Ltd for a cash consideration of USD 315 million from its wholly owned subsidiary, Twinstar Mauritius Holdings Limited (TSMHL).

 Fall in share price of Cairn would have been a trigger for announcement of the merger. Cairn shares have fallen by around 44 per cent since March 2014 while Vedanta Ltd shares are almost flat. That has taken the Cairn-Vedanta swap ratio to 1:1. Under current market conditions, therefore, Vedanta Public limited company’s interest in Vedanta Ltd would fall from 62.9 per cent to 50.7 per cent post a merger, thereby retaining control.

The move will give the parent access to Cairn’s cash and help reduce debt.

The merger gives the group unencumbered access to excess cash and continuing free cash flow generated by Cairn, the second largest free cash flow (FCF) after Hindustan zinc limited generator in the group (26 per cent of total). Positive credit rating implications should result in lower interest costs over time.

As per the ABOVE information we conclude, that Vedanta has more advantage as the debt will be covered from the cash of the Cairns India ltd & it is expected to rise in the share value of the Vedanta at approx. 7-9  % in the next 2-3 months. Vedanta CMP 182.80 (NSE)

Above analysis is purely for an educational purpose. 

Report prepared by

MBA Interns

Beeline Broking ltd.