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Open offer: Vedanta may up price
August 19, 2010
NEW DELHI: Vedanta will be forced to give an open offer at Rs 405 per share to acquire an additional 20% stake in Cairn India against the earlier proposal of Rs 355 per share.
Vedanta agreed to buy 40% stake in Cairn India at Rs 405 per share, which includes a Rs 50 per share non-compete clause payment to Cairn Energy. According to Sebi, up to 20% of share price can be given as non-compete payment.
However, a senior government official said in the present case there is no meaning of a non-compete clause as India is a net oil-importing country. And, neither of the two contracting parties is known for their expertise in oil exploration. As non-compete clause does not have any meaning in this deal, Vedanta should pay Rs 50 more (Rs 355 + Rs 50) to public (Rs 405) in the open offer, the official added.
Vedanta has agreed to buy up to 60% stake in Cairn India in a $9.6 billion deal, which operates Rajasthan and other oil fields in the country. According to the deal, Vedanta will first buy 40% stake in Cairn India at Rs 405 per share from Cairn Energy, which owns 62.35% in its Indian arm.
After this, Vedanta will give an open offer to acquire an additional 20% stake from public at Rs 355 per share. But if the open offer fails, Cairn Energy will have to offload more shares so that the total stake of Vedanta in Cairn India touches 51%. And Vedanta will pay Rs 405 for each share.
So, a senior merchant banker said Vedanta should sweeten its open offer to Rs 405 per share to avert any failure of the offer.
If open offer is revised upward to Rs 405 per share, the total acquisition cost of Vedanta will increase by Rs 1,897 crore after buying 20% stake from the public.
Rise in the share price of Cairn India to Rs 343.6 is also an indication that the market is expecting that offer price will be higher than Rs 345 per share. In the open offer, Investors will have to pay 10.3% capital gains tax, including the education cess. The present price of Rs 343.6 is justified, if one gets at least Rs 383 per share in the open offer. Even at Rs 405 per share in open offer, the net value of the share after the tax will be Rs 364.5.
Vedanta agreed to buy 40% stake in Cairn India at Rs 405 per share, which includes a Rs 50 per share non-compete clause payment to Cairn Energy. According to Sebi, up to 20% of share price can be given as non-compete payment.
However, a senior government official said in the present case there is no meaning of a non-compete clause as India is a net oil-importing country. And, neither of the two contracting parties is known for their expertise in oil exploration. As non-compete clause does not have any meaning in this deal, Vedanta should pay Rs 50 more (Rs 355 + Rs 50) to public (Rs 405) in the open offer, the official added.
Vedanta has agreed to buy up to 60% stake in Cairn India in a $9.6 billion deal, which operates Rajasthan and other oil fields in the country. According to the deal, Vedanta will first buy 40% stake in Cairn India at Rs 405 per share from Cairn Energy, which owns 62.35% in its Indian arm.
After this, Vedanta will give an open offer to acquire an additional 20% stake from public at Rs 355 per share. But if the open offer fails, Cairn Energy will have to offload more shares so that the total stake of Vedanta in Cairn India touches 51%. And Vedanta will pay Rs 405 for each share.
So, a senior merchant banker said Vedanta should sweeten its open offer to Rs 405 per share to avert any failure of the offer.
If open offer is revised upward to Rs 405 per share, the total acquisition cost of Vedanta will increase by Rs 1,897 crore after buying 20% stake from the public.
Rise in the share price of Cairn India to Rs 343.6 is also an indication that the market is expecting that offer price will be higher than Rs 345 per share. In the open offer, Investors will have to pay 10.3% capital gains tax, including the education cess. The present price of Rs 343.6 is justified, if one gets at least Rs 383 per share in the open offer. Even at Rs 405 per share in open offer, the net value of the share after the tax will be Rs 364.5.
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