group2 sectionb vedanta-cairn
TRANSCRIPT
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Vedanta-Cairn Acquisition
Group 2,Section BApoorva Dave 12P133
Gautam Hariharan 12P137
Himanshu Gupta 12P138
Vibhav Srivastava 12P176
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Cairn Energy Plcover US$ one billion
British Gas - over US$ 800 million
Shell - US$ 650 million
BP - US$ 444 million
International Investments
Oil and Gas Industry in India 2010
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Total Oil Production Total Oil Consumption
Total Natural Gas Production Total Natural Gas Consumption
Oil and Gas Industry Growth in India
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Abundant Raw MaterialLarge reserves of crude oil and
natural gas
Natural gas reserves increased from1074 BCM to 1437 BCM in 2010
Crude oil reserves increased from 775
MMT to 1201 MMT in 2010
Growing Demand for Natural Gas Fifth Largest Energy Consumer
Demand expected to rise at CAGR of
12% from 2009-15
Power Generation
Fertilizer
Tea Plantation
Transportation Fuel
0 20000 40000
2007-08
2008-09
2009-10
Non Energy
Energy
Policy Support from GovernmentFDI
NELPCBM
Skilled LaborUPES, Dehradun first and only
energy university in Asia
(million cubic metres)
Industry-wise
utilization of
natural gas
Natural Gas DiscoveriesKG Basin
Oil and Gas Industry Growth Drivers
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0 20 40
2006-07
2007-08
2008-09
2009-10
2010-11
ONGC
OIL
Private
Crude Oil Production
(MMT million
metric tonnes)
0 20 40 60
2006-07
2007-08
2008-09
2009-10
2010-11
ONGC
OIL
Private
Annual Gas
Production
(BCM)
0
200
400
600
800
2010 2011
FDI Inflow (USD)
FDI Inflow
(USD)
Acquirer TargetAvantha Power Malanpur Power
Reliance Atlas Energy Inc
Reliance Marcellus Shale
National Power
Venture Ltd
Great Offshore Ltd
M and A Activities in Indian Oil and Gas Sector
2010
Oil and Gas Industry Upstream Segment
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Industry: Metals and Mining
Products: Copper, Aluminium, Zinc
Lead, Iron Ore
Listed: London Stock Exchange
FTSE 100 Index
Australia and Zambia: Mining
India: Largest mining and non-ferrous metal company
India: Commercial Power Stations
Orissa ( 2400 MW) Punjab (1980 MW)
Sterlite Industries Limited
Hindustan Zinc Limited
Sesa Goa
Bharat Aluminium Company
Vedanta Aluminium
Sterlite Energy
Konkola Copper Mines
1. Asset Optimization , Reduce Production Cost
2. Capacity IncreaseGreenfield &Brownfield Projects
3.1 Consolidate corporate structure
3.2 Increase direct ownership of businesses
4. Seek further growth and acquisition opportunities
Create a world-class metals and mining company
and to generate strong financial returns
Overview Markets
Subsidaries Mission
Strategy
Vedanta PLC
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Vedanta PLC Group Structure
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Industry: Oil and Gas
Products: Petroleum and Natural Gas
Listed: LSE, BSE
FTSE 250 Index
Albania, Bangladesh, Greenland, India, Nepal and
Tunisia
Largest activities in India
Cairn India, subsidiary created in 2006
Production Centres: Andhra, Rajasthan, Gujarat
Major Discovery:Managala in Rajastahan (2004)
Largest onshore discovery in 20 years
1 billion barrel of potential reserves
Ranked fastest growing energy company in
2011 by Platts (McGrawHill Division)
Exploration led growth
Diversified but focused asset portfolio
with full cycle capability
Exposure to transformational potential in
frontier basins
Strong balance sheet and financial
flexibility
MarketsOverview
Strategy
Trivia
Cairn Energy PLC
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0
50
100
150
200
250
2009 2010 2011
Rajasthan
Cambay
Ravva
Cairn India Production Profile ( 000 boepd)
200
159
44
0 5
ONGC
Reliance
Cairn India
Oil India
GSPC
Niko
2P Reserves (bn boe)
2P Reserves
(bn boe)
Cairn India
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Cairn India Reserve Base
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Cost Advantage
Higher energy prices can decrease mining divisions profits, the same hike can shoot up
the profits of the exploration division
Rajasthan serves as a long term investment to drive future growth
Expansion and Exploration Opportunities
India still an emerging untapped market
35+ prospects were already identified in Cairn acreage
78% of sediment area in India yet to be explored
High Quality Management team of Cairn Energy
Large Resource Base of Cairn India 2P and 2C reserves of 890 mm boe
Low Cost Producing Assets of Cairn India
Vedanta Oil and Gas Industry Foray
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Rationale
Gives the Vedanta Group its first inroad into the oil and gas sector in India diversifying its riskand smoothen earnings fluctuations
Creating an Indian natural resources champion: comprehensive footprint across Indias
resources sector
Cairn India represents a significant oil and gas exploration and production platform
Completely independent and self sufficient in both exploration and production capabilities
Increase Vedanta's existing significant presence in the Indian state of Rajasthan from coal,power towards oil and gas
Potential to more than double this level of production whilst extending the productionplateau and increasing the resources base.
Opportunity for Sesa Goa to earn higher yield on excess cash
Steady trend in commodity prices of the metals it sells and now crude oil, too
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Synergies
World class asset and management team
Leverages Vedantas core skills
Common operating philosophy: focus on delivery and costs
Enhances and diversifies Vedantas strong growth profile: Natural progression
from bulky commodities like coal, power towards oil and gas
Financial flexibility retained and no impact on existing expansion programmes
Immediately EPS accretive for shareholders
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Synergies
Exploration opportunities
Revenue generation for future growth
Reinvestment
Sustainable development
The Cairn Board believes that the proposed Transaction delivers benefits in line with Cairns strategic goals
Cairn India experienced a successful IPO and success in completion of the first phase of Rajasthan development
The Cairn Board therefore believed that it was an appropriate time to realise further value from its shareholding in CairnIndia, whilst at the same time maintaining exposure to the ongoing business through a significant retained shareholding
Demand for petroleum products is set tojump to 368million tonnes a year by 2025, from 195 million tonne estimated in2011-12, according to the government
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Proposed Transaction Highlights-16th Aug 2010
Acquire 51% to 60% of Cairn India Limited for approximatelyUS$8.5-9.6 billion in cash
Vedanta Resources will hold 31-40%, Sesa Goa Ltd will hold20%
Ownership
Shares to be acquired at a price of Rs 355Transaction Price
Non Compete fee of Rs 50/share to be paid to Cairn EnergyNon-Compete Fee
Premium of 21.8% to the closing price of Cairn India sharesof INR332.60 on 11 August 2010Premium
Break-up Fee arrangement equal to 1% market cap of CairnEnergyBreak-Up Fee
The Proposed Transaction is expected to close by the firstquarter of 2011Timeline
h dl
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The Hurdles
ONGC has a participating interest of 30%
Ongoing discussion going on between ONGC and Cairn Energy for Royalty
payments ONGC would have the first right of refusal if it was an asset deal. However, for a
controlling share transaction, ONGC does not acquire such rights
On 28Sep,2011 ONGC agreed to Cairn Vedanta Deal and chose not to issue a
Counter Offer
Non-Compete Fee waived off
The deal will take place in two tranches - an initial sale of a 10% stake in Cairn
India and a subsequent sale of 30% subject to receipt of necessary approvalsfrom the Indian government
The Deal was completed on 8th December 2011 following government andONGCs approval
Revised Transaction Details-28 June 2011
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Tussle with ONGC
ONGC delaying NoC
ONGC and Cairn India started oil drilling operation in Rajasthan under a JV. Cairn owned 70% and
ONGC 30%.So Cairn had sought an NOC from ONGC for this deal with Vedanta
When a company digs or drills somewhere, they pay Mining Royalty to the Government. Currently
ONGC is paying the entire Royalty amount; they want Vedanta to share this cost in future. On this
issue, ONGC kept the NOC file pending
With Cairn selling its Indian operations to third company, Government had todeliberate on the matter because
Cairn was given tax-benefits under NELP
Rajasthan oil block is THE LARGEST onshore (i.e. on land) oil block of India so Home Ministry had to
give security clearance, when a foreign company was acquiring majority stakes in it. Govt. of India
itself owns about 75% in ONGC
Delay of almost 1.5 years
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Vedanta Open Offer : Takeover Code, 1997
Vedanta group was acquiring 40% stake in Cairn
India from Cairn UK Sub, as per Regulation 10 ofthe Takeover Code, 1997, Vedanta group was
required to make an open offer
Since, Sesa Goa had acquired 10.396% of the total
capital of Cairn India from Petronas at a price of
INR 331 by way of bulk deal on April 19, 2011, it
was well within the open offer price of INR 355,
and therefore, compliant with the
abovementioned regulations of Takeover Code,
1997
The Letter of Offer provided that the Open Offer
was conditional upon receipt of approvals from the
shareholders of Sesa Goa and Sesa Resources
pursuant to Section 372A of the Act
Open Offer under Takeover Code97
Impact of new Takeover Code, 2011
Since the actual transfer of approximately 30%
stake in Cairn India had not been consummateduntil the introduction of the Takeover Code,
2011, it meant that Vedanta group would not be
required to make a fresh offer for the incremental
mandatory open offer size
As per Regulation 35 of the Takeover Code, 2011,
anything done or any action taken or purported to
have been done or taken under the Takeover
Code, 1997 prior to its repeal, shall be deemed to
have been done or taken under the corresponding
provisions of the Takeover Code, 2011 or shall
remain unaffected as if the repealed regulations
had never been repealed
Therefore, Vedanta group could continue with
existing offer and was not required to make
fresh offer under the Takeover Code, 2011
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Non-compete fee
Vedanta Resources offered to pay INR 405 per share to Cairn UK Parent, i.e.
INR 50 per share over and above the price offered to minority shareholders
Cairn UK Parent has chosen to retain a significant interest in Cairn India
Its focus now, is to develop exploration potential in Greenland
Cairn UK Parent is not a potential competitor to Cairn Indias business
One must also note that the existing management is being retained in Cairn
India
Hence, the payment of non-compete fees was largely viewed as
unjustified. Ultimately, whether the payment of non-compete fee is
justified or not depends on the facts and circumstances of a particular case.
the provision of non-compete fees has been withdrawn
Non Compete Fee Issue
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Vedanta Resources
Announcement dated August 16, 2011 stated that the Deal, if completed, would be classified as a
reverse takeover of Vedanta Resources under the listing rules of the UK Listing Authority
The Listing Rules further state that a listed company must, in relation to a reverse takeover, comply
with the Class 1 requirements to send an explanatory circular to its shareholders and obtain their
prior approval in a general meeting for the transaction
when a listed company completes a reverse takeover, the FSA of UK generally cancels the listing
of its equity shares and the company is required to re-apply for the listing of the equity shares and
satisfy the relevant requirements for listing, subject to certain exceptions and conditions
Accordingly, UK FSA cancelled the equity shares of Vedanta Resources from the official list and
from trading on the LSE at the request of Vedanta Resources on December 8, 2011
Cairn UK Parent
Cairn UK Parent in its announcement dated August 16, 2011 stated that the Deal, if
completed, would constitute a Class 1 transaction under the Listing Rules
A listed company is required, inter alia, to send an explanatory circular to its shareholders
and obtain their prior approval in a general meeting for the transaction
Triggering of Provisions - UK Listing Authority
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Valuation of Cairn India as on 16th Aug 2010
CMP Rs. 333
Beta 1.052Week High/Low 358/230
Premium as per CMP6.6%
Premium as per IV12.7%
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Market Reaction
Following the
announcement of the Deal,
Vedanta Resourcesplunged by 5.5% on the
LSE
Following the
announcement of the Deal,
Cairn India plunged by
7.2% on the BSE
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Its senior management seemed to give transaction a thumbs-down
2/5th of the company's 12-member top management team had left,
while 1 joined Sanjay Singh replaced Kumar
Role of the top management in the premium
Key employees need to continue if there is to be no risk to (Cairn's)
future prospects from management change
There is a definite premium on people in this business
Along with these exits, much of the management premium' that
Agarwal paid for Cairn walked away
But, even though much of the top management premium has been
destroyed, the real value drivers in this business are the geo-
technical people down the line
Change in ownership one of the reasons for leaving the company
While Cairn India is a professionally-managed company today,
Vedanta could change the texture of the company to a promoter-
driven one
Think differently, behave differently, function differently, concern if
styles can coexist
Integration Issues
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With demand for oilmen growing 12-14%/year, the company needed to retain its best people
Employee Concerns
Job security, element of uncertainty. there are concerns role in the future
Possible changes in systems and work culture
Vedanta has no experience in oil, which is a very complex business with high risks and
rewards.
Vedanta's policy for employee remuneration for Cairn staffers
Many of them had generous stock options
Rahul Dhir called "townhall meetings"
speaks directly to a gathering of employees at the HQ
those in remote locations tele-connected to the suave CEO
Employee Concerns
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EBITDA Growth & Diversification
IL J d
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Recent PIL Judgement
The petitioner, a Bengaluru resident Arun Kumar Agarwal, had challenged the approval granted by the Centre on January
24, 2012 for the acquisition of stake in CIL by Vedanta group. Pleaded that
ONGC be directed to exercise its right of pre-emption over sale of shares of CIL on the same terms
A direction to CBI to probe against company for not exercising legal rights under RoFR and giving clearance to deal.
PIL Details
The Supreme Court on Thursday, 9 May 2013, upheld $8.5 billion Cairn-Vedanta deal, saying that the Centre and ONGC not
exercising the right of pre-emption over sale of shares of Cairn India Limited (CIL) was a prudent commercial decision.
It considered various commercial and technical aspects flowing from the Production Sharing Contract (PSC) and also its
advantages that ONGC would derive if the Cairn and Vedanta deal was approved
The court passed the order on a PIL alleging that there was a clause in the agreement between Cairn group and ONGC that
in case Cairn Group wanted to sell its shares in Cairn India, it would first offer the same to ONGC and this right was "not
asserted" by the PSU and the Centre.
"The report of SBI Caps, after making a detailed financial analysis, also supported the decision taken by the ONGC. The
decision to grant no objection to the transfer of shares of CEIL (Cairn Energy India Pvt. Ltd.) from Cairn to Vedanta was also
on the basis that the proposed price of share was at Rs.355 per share, was well in excess of its intrinsic value as were
evaluated by SBI," the bench said, adding that SBI had evaluated each share
Supreme Court Response
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