Sterlite, Sesa Goa to merge at 5:3 ratio, says Vedanta

Vedanta group companies, controlled by NRI billionaire Anil Agarwal on Saturday announced the merger of its two listed companies Sterlite Industries and Sesa Goa as part of their restructuring exercise.  

Accordingly, for every 5 shares of Sterlite, 3 Sesa Goa shares will be issued and Sterlite will merge into Sesa Goa, which will be christened Sesa Sterlite.  Post consolidation Vedanta Group will own a 58.3 per cent shareholding in the new Sesa-Sterlite structure.

However, the restructuring will come into effect only after some minority shareholders and regulators in India and the UK give it their stamp of approval.

As per the plan, Vedanta Aluminium and Madras Aluminium will be 100 per cent consolidated into Sesa Sterlite. 

Vedanta’s direct holding of 38.8 per cent in Cairn India will be transferred to Sesa Goa, together with the associated debt of $5.9 billion, at cost. After the transfer, Sesa Sterlite will have a 58.9 per cent shareholding in Cairn India.

The new firm will be the seventh largest global diversified natural resources major by earnings before interest, tax and depreciation. Anil Agarwal, Vedanta chairman, said, “Sesa Sterlite will be one of the largest global diversified natural resources majors, supporting the country’s industrial growth. This transaction is a natural evolution, leading to simplification of the group’s structure. Sesa Sterlite will be the principal operating company in the group and with its high quality assets, growth projects and strong management, it is well placed to create value for all shareholders.”

The group also plans to double capacity in the next three years. The management also said the new firm will have greater scale and diversification reduces volatility of earnings for Sesa Sterlite. The press release said increased diversification would reduce volatility of earnings through commodity cycles, lowering the cost of capital and enhancing value.
The company also said there would be significant synergies from the merger, and there would be cost savings of around 1,000 crore a year. 

After the consolidation, Vedanta will own 58.3 per cent in Sesa Sterlite. The group’s 79.4 per cent shareholding in Konkola Copper Mines will continue to be directly held by Vedanta.

Analysts maintain that the merger removes all uncertainties that were there regarding the organizational structure and this will create a big resource house with a market cap of $16-20 billion.

Rakesh Arora of Macquarie Capital Securities said: “There would be some sentiments running high on Vedanta Aluminum. But, remember this was a bad decision in hindsight. But that doesn’t absolve the responsibility of all the shareholders.”

Sterlite shareholders are geting 68 per cent from the merged entity and will get more from current level. Overall company should see re-rating, added he.

Analysts also maintain that liabilities of Cairn India, VAL being transferred to Sterlite is a negative. Jagannadham Thunuguntla of SMC Capital said: “This is a clear attempt to unlock value. It is a good move from a 1 year or long term point of view.”


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