Vedanta Resources to acquire Cairn Energy through Cairn India

09 Apr 2013

1

After having acquired the Indian subsidary of energy firm Cairn Energy in a $8.48-billion deal in 2011, Anil Agarwal-controlled Vedanta Resources Plc is now planning to acquire the Scottish oil and gas explorer, which has a market cap of $1.9 billion.

Vedanta, which has a market cap of $2.8 billion, is expected to announce the proposed takeover of Cairn Energy by Cairn India after unveiling its fourth quarter results tomorrow.

Through a series of transactions, London-listed Vedanta had acquired a controlling 58.5 per cent stake in Cairn India for $8.48 billion in 2011 (See: Cairn-Vedanta deal finally through after cabinet nod).

Founded in 1981 by its CEO, Sir Bill Gammell, a former international rugby player, Edinburgh-based Cairn Energy's growth was powered by its largest discovery of oil at the Mangala field in Rajasthan.

Apart from India, Cairn energy has 50 prospective exploration blocks in Greenland, Spain, Morocco, the UK, Norway, Malta, Ireland, France, Albania, Nepal, Bangladesh, India, and Tunisia and produces around 33,000 barrels of oil equivalent per day.

Last year it spent $450 million in acquiring Stavanger, Norway-based Agora Oil and Gas, which held interest in several blocks in the North Sea, and expanded its interest in this region by acquiring Nautical Petroleum for$642 million.

Following the 2011 sale of assets in India worth $8.48 billion, Cairn Energy has returned $3.5 billion to shareholders, spent more than $1 billion in acquiring North Sea assets and another $1 billion in a futile search for hydrocarbon in Greenland.

Despite spending a huge amount on acquisitions and exploration last year, Cairn Energy still has cash reserves of $1.6 billion as of 31 December 2012.

Its stock price however has taken a beating after it failed to discover oil in Greenland, which cost the company a whopping $1 billion.

Its market cap of $1.9 billion is not a true valuation of the company since its 10 per cent stake in Cairn India alone is itself valued at around $1.1 billion, while its proven plus probable (2P) reserves as at 31 December 2012 on a net working interest basis was16 mmboe .

Anticipating a takeover, US investor hedge fund Greenlight Capital has recently built up stake in Cairn Energy to 3 per cent.

Cairn Energy's other large shareholders are Boston-based MFS Investment Management with 9.66 per cent, Acadian Asset Management and New York hedge fund Scopia Capital hold more than three per cent each.

The acquisition of Cairn Energy would transform Cairn India from being India-focused to into a global energy company. The Gurgaon-based company is sitting on a $2.6 billion cash pile.

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