Aviva Investors has opposed billionaire Anil Agarwal-led Vedanta Ltd's USD 2.3 billion takeover of Cairn India saying the deal is not in the interest of minority shareholders as it fails to provide value to them.
Opposing Vedanta's all-share merger deal, Aviva said there was "a risk of the Vedanta Group misallocating capital" of oil producer Cairn India to pay off its huge debt.
Aviva holds 4.3 per cent stake in Edinburgh-based Cairn Energy plc, the original owner of Cairn India and still its largest minority shareholder. Its emerging market equity teams both own stakes in Cairn India.
"As long-term investors, we believe that the timing of this deal is opportunistic and materially undervalues Cairn India, its current reserves and future prospects," Aviva Investors, part of insurer Aviva Plc, said in a statement.
Aviva Investors, the statement said, was opposed to the recently announced offer by majority shareholder Vedanta Ltd - the Mumbai-based subsidiary of London-listed mining group Vedanta Resources - to buy out minority shareholders in Cairn India.
"In its current structure, the deal fails to deliver value to minority shareholders, as such we don't believe it's in the interests of minority investors in either Cairn India or Cairn Energy," it said.
Aviva Investors said the "combination of a depressed global oil price, ongoing tax litigation and uncertainty over the long-term ownership structure of Cairn India have all contributed" to the low share price.
"We are also concerned there is a risk of the Vedanta Group misallocating capital, should its integration of Cairn India proves successful.
"With high levels of debt and an aggressive capital expenditure programme, we fear the Vedanta Group would prioritise its immediate needs over the long-term potential we believe exists at Cairn India," it said.
Vedanta Ltd, the second-most indebted metals firm in the country, has proposed to absorb its subsidiary Cairn India in an all-share deal that is being seen as an attempt to use the oil producer's nearly Rs 17,000 crore of cash for paying of its loans.
It is saddled with Rs 77,752 crore of gross debt, excluding a USD 1.25 billion inter-company loan from Cairn India.
Cairn India is nearly 60 per cent owned by Vedanta while Cairn Energy has 9.8 per cent stake in the company.
Responding to Aviva, Vedanta said, "The value proposition remains intact. The oil price fall only underlines the benefit of having a diversified portfolio of large, well-invested, long-life and low cost assets. Synergies from the merger will accrue to all shareholders and well will continue to allocate capital in most efficient way to maximise value."
The vote on the merger, it said, "will take place in the last quarter of this year and until then we will continue to engage with all shareholders."
The offer of one share of Vedanta for every one held in Cairn India "was unanimously approved by the Cairn India board on the basis of a fairness opinion from its financial advisers and we will remain disciplined on the value of shares we do not currently own," Vedanta said in a statement.
