London-listed Vedanta Resour-ces said yesterday it had agreed to acquire a majority stake in energy explorer Cairn India for up to $9.6 billion in cash, building on its core mining business.
“The proposed acquisition significantly enhances Vedanta’s position as a natural resources champion in India,” Vedanta’s Indian tycoon owner Anil Agarwal said in a statement.
The news sent the share prices of Vedanta and Cairn Energy, the majority-owner of Cairn India, to the top of London’s benchmark FTSE 100 index.
Cairn India is the country’s fourth-largest oil and gas company, thanks to a massive energy find in the western Indian desert state of Rajasthan.
“Cairn India’s Rajasthan asset is world class in terms of scale and cost, delivering strong and growing cash flow,” said Agarwal.
“The company has a proven management team and very significant further resource potential. Cairn India will benefit from Vedanta’s track record of acquiring and growing world class companies, especially in India.”
Vedanta, which has iron ore, zinc and copper mines, follows the world’s biggest miner BHP Billiton in acquiring oil assets.
John Mcgloin, an analyst for stockbroker Collins Stewart, said that the deal “allows Vedanta to diversify their production base and provides a hedge against operating cost increases, of which energy prices is a key input”.
“Vedanta has a significant growth profile and the acquisition of an oil company may be viewed as distracting for the company in delivering on that growth,” he added.
Vedanta said it would buy 51-60 per cent of Cairn India for between $8.5 and 9.6 billion. The deal is expected to complete in three months. Scottish exploration group Cairn Energy, which holds 62.4 per cent of Cairn India, said the sale would allow it to return cash to shareholders and provide it with funds to push on with its drilling programme in Greenland.
The sale value is a 32 per cent premium to the average closing share price of Cairn India over a 90-day period.
Cairn India owns a 70 per cent stake in the Mangala oil field in the prolific Rajasthan block where the rest is held by state-owned Oil and Natural Gas Corp.
Cairn India estimates the Mangala field can produce up to 150,000 barrels of crude oil per day. The entire Rajasthan block is estimated to have a potential of up to 240,000 barrels per day.
Cairn Energy began to pump crude from the vast reserves in Rajasthan in August last year. It bought the field in 2002 from Anglo-Dutch giant Shell, which had concluded it contained no major reserves. Two years later, Cairn struck oil.