Cairn India Forms Panel on Vedanta Deal Price - Corporate News - Livemint

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Corporate News

Posted: Wed, Sep 15 2 010. 10:51 PM IST

Aveek Datta

Cairn India forms panelon Vedanta deal priceIndependent committee to seek feedback from retail

shareholders as firm looks to generate a consensus

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Positive outlook: A file photo of Cairn India CEO

Bill Gammell. Ankit Agrawal / Mint

Mumbai: Oil and gas company Ca irn India Ltd will set up a committee o f

independent directors that w ill advise the management on how best to

proceed with the sa le of as much as 51% of the company to Vedanta

Resources P lc, a plan that has bee n facing hurdles ever since it was

announced a month ago.

The two-member panel will

base its recommendations

on feedback received from

retail shareholders of the

firm as it seeks to generate

a consensus on the

transaction. The committee

will focus on the much-

debated non-compete fees

to be paid by Vedanta for

acquiring a controlling stakein Cairn India from its

existing promoters, the UK-

based Cairn Energy Plc.

“Most directors on Ca irn India board may have a conflict of interest by virtue

of being also on the boa rds of either Ca irn Energy or Vedanta,” Bill Gammell,

chief executive of Cairn Energy, said at the company’s annual general

meeting in Mumbai on Wednesday. “We felt it is important to have an

independent committee to which shareholders can talk to on all aspects of

the dea l, including the issue of non-compete fees .” The committee w ill consist

of Omkar Goswami and Edward Story, directors on the board of Cairn India.

On 16 August, Cairn Energy announced that it would sell 40-51% in Cairn

India to Vedanta for a maximum consideration of $9.6 billion (R 44,544 crore

today). Its offer of R 405 per share included non-compete fees of R 50. The

stake sale will be followed by an open offer for up to 20% more of CairnIndia’s equity at a price of R 355 per share. The UK firm holds 62.36% of

Cairn India.

The move is in line with the recommendations by the Takeover Regulations

Advisory Committee appo inted by stock market regulator Securities and

Exchange Board of India, or Sebi. It has said that a takeover target should

form a committee of independent directors to consider and give its “reasoned

recommendations” on an open offer.

The recommendations of the committee should be published by the target

company befo re the o ffer begins, according to the report. Sebi is yet to

finalize the draft recommendations of the panel.

Some analysts had criticized the valuation of the dea l, saying tha t it may put

retail investors in Cairn India at a disadvantage.

The Mint Report for 15 September 2010

Vedanta open offer for Cairn India yet to get Sebi

nod

Govt writes to Sebi on Cairn-Vedanta deal

ONGC can decide on bidding for Cairn India by

October

Industrializing India leaves little room for farmers

Appeals body scraps Lafarge plant approval

ArcelorMittal may get land for $6.4 bn India plant

by Dec

Vedanta case is a wake-up call

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There was “limited rationale” in paying a non-compete fee for a

commoditized business and the brokerage be lieved that the dea l was

unfavourable from a minority shareholder’s point of view, Saeed Jaffery, an

analyst with Ambit Capital Pvt Ltd, said in a 17 August note.

Analysts had sa id retail shareholders could lose out on as much as R 3,570

crore if the non-compete premium is not extended to them as w ell.

The independent committee’s recommendations should be made binding,

experts said. It wasn’t immediately known whether the views of the

committee will be binding.

“That they have appointed a committee of independent directors to look into

these issues is a good thing,” said a corporate governance expert with aninternational audit and consulting firm. He did not want to be identified.

“However, the measure can only be effective if their views are binding upon

the boa rd and no t mere recommendations.” According to him, the committee

should be allowed to function on the lines of a company’s audit committee.

On Wednesday, Cairn India’s sha res gained 1.39% on the Bombay Stock

Exchange to close a t R 331.20, while the Sensex, the bourse’s benchmark

index, rose 0.8%. Vedanta’s sha res we re trading at GBP 2145 on the London

Stock Exchange at pres s time, up 0.8% from its previous close.

Since the announcement of the dea l, Cairn India’s shares have lost 0.5%,

while the Sensex has ga ined 8.04%.

Defending the non-compete fee, Gammell said that the issue was for Indian

stock market regula tor to examine. Cairn Energy’s commitment not to ente r

India and neighbouring markets independently for the next three years

entailed a “huge issue of value” that it could have created by exploring other

opportunities in the region, Gammell said.

Cairn Energy had said it would seek the approval of the government before

going ahead w ith the stake sale. The deal is yet to be ratified by the

government.

Also unresolved is the issue of Cairn’s Indian partner, state-owned Oil and

Natural Gas Corp., having pre-emption rights with respect to the transfer of

ownership of asse ts in which it shares a participating interest.

Despite these hurdles, Gammell said he was hopeful of closing the deal by

the end of the yea r and said discussions w ith ONGC were going on.

“We have an excellent relationship with ONGC and w ill continue to talk to

them,” Gammell said, though he didn’t d ivulge any deta ils of its discussion

with its Indian pa rtner.

Asked whether it would have bee n better to take the government into

confidence before announcing the deal, Gammell said Cairn Energy always

intended to inform the government first but news of the deal leaked before it

could do so.

“The most difficult part of a corporate transaction is to get a variety of

stakeholders on board at the right time. Though the deal was secret, news

about it leaked even before we could speak to the Indian government. It

would have be en bette r if we could have briefed the government before

that,” Gammell admitted.

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Cairn India Forms Panel on Vedanta Deal Price - Corporate News - Livemint