Billionaire Seeks BHP-Style Conglomerate in Vedanta Deal – by Debjit Chakraborty (Bloomberg News – June 14, 2015)

Billionaire Anil Agarwal’s move to merge his two Indian units will create a national natural resources group to compete with BHP Billiton Ltd. and Vale SA. Agarwal’s Vedanta Ltd. is planning to absorb Cairn India Ltd., combining India’s biggest producer of aluminum and copper with its largest onshore oil producer. The merger will create an entity with a market capitalization of about $11 billion, based on the last traded price of Vedanta Ltd.

“It’s a dream to create a singular yet powerful natural resources conglomerate of Indian origin to mirror the likes of BHP or Vale,” Tom Albanese, chief executive officer of parent Vedanta Resources Plc, said Sunday at the media briefing in Mumbai. “This conglomerate will be globally recognized.”

The merger will also help the group, weighed down by $12 billion of total debt, reorganize the finances of Vedanta Ltd., India’s second-most indebted metals company. The increased size will allow Albanese, the former CEO of Rio Tinto Group, to be more competitive against global resources giants.

“The consolidated entity will have the distinct advantage of size and strength because of the cash on Cairn India’s balance sheet,” Deven Choksey, managing director of K.R. Choksey Shares & Securities Ltd., said in a phone interview. “The consolidation will make Vedanta a superpower to negotiate with lenders for raising funds for expansions.”

Shares Fluctuate

Both Cairn India and Vedanta Ltd. shares fluctuated between gains and losses on Monday. Cairn India gained 3.9 percent to 187.70 rupees at close of trade in Mumbai, rebounding from a drop of as much as 2.8 percent. Vedanta Ltd. fell 1.3 percent to 181.35 rupees, while Vedanta Resources declined 0.9 percent to 589 pence as of 12:15 p.m. in London.

Under the all-stock deal, Cairn India shareholders will get one ordinary share and one 7.5 percent-redeemable preference share in Vedanta Ltd., according to statements from both the companies on Sunday. The deal offers shareholders an implied premium of 7.3 percent over Cairn India’s last close.

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