With Vedanta Resources set to acquire 60% stake in Cairn India for $9.6 billion, Jagannadham Thunuguntla, equity head, SMC Capitals Ltd, tells Puneet Wadhwa that the deal may become a benchmark for valuing oil assets in future:
What is your opinion on the Cairn-Vedanta deal?
The deal between Vedanta and Cairn Energy is extremely fascinating on several counts. The deal is surely a game changer for the oil industry, both in India and globally. It may become a benchmark for oil-asset valuation in future deals. From the Cairn Energy’s point of view, this is a historic moment, as their Indian operations are the key component of their global operations. This technically means that Cairn UK will get a huge pile of money. However, it remains to be seen how they deploy it.
What are the gains for Vedanta-Sesa Goa?
The key rationale or drive for Vedanta in this deal could be the expansion of its empire from mines, minerals to oil assets. It seems Vedanta wants to bet on the oil arena. However, it doesn’t want to make a blind bet. Hence, it has chosen to buy Cairn Energy, which has Rajasthan oil blocks with ‘proven’ reserves. Vedanta must have thought this is a best way of getting into oil business instead of bidding for oil fields.
What do you advise Cairn shareholders?
The open offer price will be Rs 355 per share. The minority shareholders appear to be in a disadvantageous position, as under this pricing structure, non-compete fee portion does not get added in the open offer pricing.
I suggest Cairn India shareholders a ‘sell’ at the current price. There can be a lot of regulatory issues before the deal gets the government nod, as Vedanta has no prior experience in the oil and gas space. I expect the stock price to come down to Rs 355.
