Vedantas Sterlite-Sesa Goa merger: What analysts say

Anil Agarwal-led Vedanta Group has announced plans to merge Sterlite industries to Sesa Goa as part of its restructuring exercise. The merger will be completed by an all-share transaction. For every 5 shares of Sterlite, 3 Sesa Goa shares will be issued.

Post consolidation Vedanta will own a 58.3 per cent shareholding in the new Sesa-Sterlite structure.

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

WHAT ANALYSTS SAY:

Rakesh Arora, managing director and head of research, Macquarie Capital Securities:

This 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.

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.

Sanjiv Bhasin:

Liabilities of Cairn India, VAL being transferred to Sterlite is a negative. Hence, according to me the restructuring is a short term negative. Initially, market might outweigh the negatives because we are in a bullish market. But it has mitigated the value of sesa goa and sterlite companies as company balances are put to risk. The major beneficiary is Vedanta group."

Jagannadham Thunuguntla, Strategist & Head of Research, SMC Cap:

This is a clear attempt to unlock value. It is a good move from a 1 year or long term point of view.

AK Prabhakar, Vice President at Anand Rathi:

This will be more beneficial for the parent company. So, minority holders of Sesa Goa will not be happy with this as Sesa Goa will emerge as a loser because of this.

WHAT THE MANAGEMENT SAYS:

Anil Agarwal, Chairman of Vedanta:

“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.”

“It was absolutely necessary not to have a 2 holding company, so we said let us have Vedanta as one holding company. Sterlite Industries with its new name Sesa Sterlite should be the operating company. If you look at the 1.2 billion people in our country we need a resource champion. The demand today is for a diversified metal company.

Naveen Agarwal, Deputy Exec Chairman of Vedanta:

“This transaction unlocks cash synergies of Rs 1000 crore per annum and equally importantly this transaction is earnings accretive for all sets of shareholders. The new structure significantly simplifies the corporate structure removing all cross holdings and consolidating assets under the new Sesa Sterlite.”

“Significantly increased scale as you are aware increases volatility through the commodity cycle, derisks earnings and cash flows. It also ensures capital is invested in only those group projects where the return is greatest and also substantially reduces the cost of capital.”

MS Mehta, Group CEO, Vedanta:

“This consolidation will create value for all shareholders. It will lead to a simpler and more efficient structure and will facilitate more flexible allocation of capital. Our shareholders will benefit from unparalleled growth across metals, mining and oil & gas, besides, the increased synergy.”

PK Mukherjee, Managing Director of Sesa Goa:

“This is a positive and big step forward for Sesa Goa. In addition to being part of a much larger group with an increasingly global shareholder base, we will benefit from diversification, whilst increased scale will reduce volatility of earnings and cash flows through the commodity cycle. This will support our growth strategy and also enable us to benefit from the attractive growth projects in oil & gas, zinclead-silver, aluminium and power within the Group.”