Vedanta to buy up to 60% stake in Cairn for $9.6 billion

London-listed mining firm Vedanta Resources will acquire a majority stake of up to 60 per cent in Cairn India, the owner of nation's largest onland oilfield, for $9.6 billion.

Edinburgh-based Cairn Energy Plc, which holds 62.37 per cent stake in Cairn India, will sell a maximum of 51 per cent of its stake to Vedanta Group for $8.48 billion, the two companies said in separate statements.

Cairn Energy is selling the stake at Rs 405 per share, a premium of about 32 per cent to the Cairn India average closing price for 90 days prior to August 14.

The price includes a Rs 50 per share non-compete premium for Cairn Energy Plc not to enter into oil and gas business in India, Pakistan, Bhutan and Sri Lanka. Vedanta will make an about $3 billion open offer to Cairn India shareholders at Rs 355 per share for up to 20 per cent additional stake.

If Vedanta is able to get offers for entire 20 per cent then Cairn Energy will restrict sale of its share to 40 per cent (at $6.651 billion) but will scale up its share sale up to 51 per cent if the issue is not fully subscribed.

Vedanta Resources Plc will acquire 31 to 40 per cent interest in Cairn India while the remaining 20 per cent would be taken by group firm Sesa Group.

For the zinc, copper and iron ore mining firm Vedanta, this will be maiden foray into the lucrative oil business by getting hold of Cairn India's Mangala oilfields in Rajasthan that are currently producing 125,000 barrels per day and have potential to go up to 150,000 bpd.

Run by billionaire Anil Agarwal, 57, the group has already sought to expand into power generation. Vedanta follows mining major BHP Billiton in adding oil assets.

BHP had moved into oil and gas with its 2001 acquisition of Billiton Plc for $11.6 billion.

Vedanta's deal will be contingent on government approval, as Cairn's three producing oil and gas assets, including the giant Rajasthan fields and seven exploration blocks, either have explicit provisions for seeking prior approval before transfer of interest or gives pre-emption, or the right of first refusal, to partners like ONGC.

Cairn Energy Plc Chief Executive Bill Gammell said he was hopeful of government support for the deal.

The Production Sharing Contract for the Rajasthan field is silent on government approval for transfer of ownership, but the Joint Operating Agreement between Cairn India and ONGC gives the partners ROFR in case of stake sale.

The same is the case with gas discovery block CB-OS-2 and the eastern offshore Ravva oil and gas fields.

But its seven exploration blocks, including the KG-DWN-98/2 block with ONGC, have explicit provisions for government approval in case of a change in control.