Cairn agrees to lower price as Vedanta deal remains caught in red tape in Delhi

As the Government of India takes its own time in approving the $6.6 billion acquisition of Cairn India by Vedanta Resources, the two have decided to go ahead as much as possible without violating the law. Cairn has also agreed to receive 9% less than initially promised by Vedanta.

As a result, a further 10% of the equity of Cairn India — the Indian subsidiary of London-listed Cairn Energy — will be bought by the Vedanta group from the London firm over the next fifteen days.

The move will not trigger government intervention since the majority of the equity will still remain with the British firm. Cairn Energy, the parent, will hold 52.2% even after the transfer of this 10%.

The 10% is the third chunk of Cairn India’s equity that has been acquired by Vedanta Resources since the deal was announced several months ago.

Earlier, the London-based minerals and metals player had bought 10.4% of Cairn India from the Malaysian oil explorer Petronas and another 8.1% from ordinary investors under an open offer.

According to the original plan, Cairn would be left with only around 22% of the equity of its Indian subsidiary once the deal is complete. To reach that figure, Vedanta must acquire another 30% of Cairn India’s equity, taking its total stake in the company from the current 28.5% to 58.5%.

“The acquisition of the remaining 30% stake by Vedanta is subject to necessary consents and approvals from the Government of India,” it said.

Meanwhile, in an intriguing sign, Vedanta said it will not be paying $6.65 billion as announced earlier, but only $6.02 billion. No reason was given why Cairn had agreed to the lower figure or what would happen to the difference of $600 million. Cairn, however, will no longer have the non-compete agreement with Vedanta, thanks to the lower price that it seems to have agreed on.

The petroleum minister Jaipal Reddy has already said he has forwarded the acquisition approval to the Cabinet of India, which is expected to take a call on the proposal in the coming few days.