Vedanta buys Cairn India stake for up to 9.6 billion dollars
London-listed Vedanta Resources said Monday it had agreed to acquire a majority stake in energy explorer Cairn India for up to 9.6 billion dollars in cash, adding to its core mining business.
"The proposed acquisition significantly enhances Vedanta's position as a natural resources champion in India," Vedanta's tycoon owner Anil Agarwal said in a statement.
The announcement 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 India'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 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 have 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 percent of Cairn India for between 8.5 and 9.6 billion dollars (7.5 billion euros).
Scottish exploration group Cairn Energy, which holds 62.4 percent 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.
"I am delighted to announce the proposed disposal of a significant shareholding in Cairn India in line with our objective of adding and realising value for shareholders," said Cairn Energy's chief executive Bill Gammell.
Upon acquisition of a majority stake, Vedanta Resources must make an open offer for an additional 20 percent stake under Indian stock exchange rules.
Cairn India owns a 70 percent 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.
In mid-morning London trade, the share price of Vedanta's share price was up 3.90 percent to 2,134 pence and Cairn Energy jumped 2.35 percent to 478.8 pence. The FTSE 100 was down 0.29 percent to 5,260.15 points.
© 2010 AFP