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Investors approve Sesa, Sterlite merger

BS Reporter / Mumbai 26 Jun 12 | 12:23 AM

Four years after investors shot down restructuring of Vedanta Resources Plc, Anil Agarwal, executive chairman of the Vedanta Group, is second time lucky, as he has managed to convince shareholders to approve the merger of Sesa Goa Ltd and Sterlite Industries India Ltd, two group companies.

The new entity, Sesa-Sterlite, with a market capitalisation of Rs 1,24,000 crore, will be in top 10 Indian companies.

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In a court-convened meeting on June 19, the shareholders of Sesa Goa voted in favour of the merger of the two companies. In an announcement to the stock exchanges on Monday, Sesa Goa said the shareholders had given their nod to the merger. “Of the members present and validly voting, 91.7 per cent in numbers representing 79.12 per cent of votes in value voted in favour of the resolution approving the scheme."

Vedanta said it is simplifying its business by merging its Indian subsidiaries
How the Sesa-Sterlite merged entity stacks up among India’s largest companies

M-Cap (in Rs crore)

TCS 2,37,927.02
Reliance Ind 2,34,273.32
ONGC 2,33,521.83
Coal India 2,12,735.00
ITC 1,95,499.09
SBI 1,41,918.25
Infosys 1,41,742.53
HDFC Bank 1,26,455.22
NTPC 1,25,578.36
Sesa-Sterlite* 1,24,000.00
Bharti Airtel 1,17,229.44
* Merged entity

Also, shareholders of Sterlite Industries voted in favour of the merger on June 21 in Tuticorin. Sterlite said that 92 per cent of the total value of votes were in favour of the merger.

August 2010: Vedanta agrees to buy majority stake in Cairn India 
December 8, 2011: The Cairn India buy finally gets completed after sorting out regulatory issues and that related to ONGC
February 25, 2012: Vedanta announces group restructure; Sesa-Sterlite to be the holding company which includes 38.3 per cent of Cairn India as well
April  24, 2012: The Competition Commission of India approves the merger
June 25, 2012: The shareholders of Sesa Goa and Sterlite Industries approve of the merger 
The company expects to complete the merger process in the current calendar year itself 

As per section 391 of the Companies Act, 75 per cent of shareholders present in person or proxy need to vote in favour for a resolution to be passed.

Now the companies will apply for legal approvals of the merger. Vedanta expects the entire merger process to be completed in the current calendar year itself.

Companies that will be merged to form Sesa-Sterlite                                                                      FY11-12 ( Rs Crore)
Companies Net sales Reported profit
after tax
Market cap
Sterlite Industries 40,966.77 4,827.92 33,494.36
Hindustan Zinc 11,255.14 5,526.04 50,112.06
Sesa Goa 8,274.53 2,695.50 16,156.57
Cairn India ( 38.8 %) 4,601.93 3,079.84 24,132.01
Total 65,098.37 16,129.30 123,895.00
Compiled by BS Research Bureau                           Source: Capitaline

This is the second time Vedanta is trying to restructure its business. The first time, in 2008, was met with a fierce resistance from shareholders because of the valuation of Konkola Copper Mines, a Zambia-based copper mining and smelting subsidiary of Vedanta. The restructuring back then was shelved.

The Sesa-Sterlite merger will create the world’s seventh largest metal company and the 10th largest Indian company, in terms of market cap. Vedanta’s Agarwal in February had said: “There was absolutely necessary not to have two holding companies. Therefore, in the new structure, Sesa-Sterlite will be the operating company with all assets within them. Only the Konkola Copper Mines (will) remain directly under Vedanta."

With this merger, Sesa-Sterlite will house oil, aluminium, alumina, power, iron ore, lead, zinc, copper and silver businesses of Vedanta.

According to Vedanta, “In the 12 months to December 2011, Sesa Sterlite would have generated revenues of Rs 66,431 crore and earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 24,953 crore, combined with a strong balance sheet with net debt of Rs 36,936 crore and net debt/Ebitda of 1.5 times."

As per analysts, the market cap of the combined entity will be over Rs 1,00,000 crore, or close to 25 per cent higher than the market cap of the companies individually.

In an Emkay Research report dated February 27, two days after the restructuring announcement, Jagdish Agarwal, Goutam Chakraborty and Prince Poddar wrote they expected the new entity to have a profit after tax of Rs 10,920 crore in 2012-13.

In the new Sesa-Sterlite entity, Vedanta will hold 58.3 per cent stake. As per the swap ratio announced by Vedanta in February, Sterlite shareholders will get three shares of Sesa Goa for every five shares. Barring Konkola Copper Mines, all other group companies — Cairn India Ltd, Vedanta Aluminium Ltd, Bharat Aluminium Co Ltd, Madras Aluminium Co Ltd and Hindustan Zinc Ltd — will become subsidiaries of Sesa-Sterlite.

With this merger, the debt of the London-listed Vedanta Resources will fall by 61 per cent to $3.8 billion, as it gets transferred to the new entity. The net debt in Sesa-Sterlite will be $7.5 billion.

This mega debt in the books of Sesa-Sterlite was the main reason for some investor backlash. Apparently, a few investors were unhappy with the debt of Vedanta Aluminium getting transferred into the new company as it is a loss-making unit.

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