Group2 SectionB Vedanta-Cairn

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    Vedanta-Cairn Acquisition

    Group 2,Section BApoorva Dave 12P133

    Gautam Hariharan 12P137

    Himanshu Gupta 12P138

    Vibhav Srivastava 12P176

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    Cairn Energy Plcover US$ one billion

    British Gas - over US$ 800 million

    Shell - US$ 650 million

    BP - US$ 444 million

    International Investments

    Oil and Gas Industry in India 2010

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    Total Oil Production Total Oil Consumption

    Total Natural Gas Production Total Natural Gas Consumption

    Oil and Gas Industry Growth in India

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    Abundant Raw MaterialLarge reserves of crude oil and

    natural gas

    Natural gas reserves increased from1074 BCM to 1437 BCM in 2010

    Crude oil reserves increased from 775

    MMT to 1201 MMT in 2010

    Growing Demand for Natural Gas Fifth Largest Energy Consumer

    Demand expected to rise at CAGR of

    12% from 2009-15

    Power Generation

    Fertilizer

    Tea Plantation

    Transportation Fuel

    0 20000 40000

    2007-08

    2008-09

    2009-10

    Non Energy

    Energy

    Policy Support from GovernmentFDI

    NELPCBM

    Skilled LaborUPES, Dehradun first and only

    energy university in Asia

    (million cubic metres)

    Industry-wise

    utilization of

    natural gas

    Natural Gas DiscoveriesKG Basin

    Oil and Gas Industry Growth Drivers

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    0 20 40

    2006-07

    2007-08

    2008-09

    2009-10

    2010-11

    ONGC

    OIL

    Private

    Crude Oil Production

    (MMT million

    metric tonnes)

    0 20 40 60

    2006-07

    2007-08

    2008-09

    2009-10

    2010-11

    ONGC

    OIL

    Private

    Annual Gas

    Production

    (BCM)

    0

    200

    400

    600

    800

    2010 2011

    FDI Inflow (USD)

    FDI Inflow

    (USD)

    Acquirer TargetAvantha Power Malanpur Power

    Reliance Atlas Energy Inc

    Reliance Marcellus Shale

    National Power

    Venture Ltd

    Great Offshore Ltd

    M and A Activities in Indian Oil and Gas Sector

    2010

    Oil and Gas Industry Upstream Segment

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    Industry: Metals and Mining

    Products: Copper, Aluminium, Zinc

    Lead, Iron Ore

    Listed: London Stock Exchange

    FTSE 100 Index

    Australia and Zambia: Mining

    India: Largest mining and non-ferrous metal company

    India: Commercial Power Stations

    Orissa ( 2400 MW) Punjab (1980 MW)

    Sterlite Industries Limited

    Hindustan Zinc Limited

    Sesa Goa

    Bharat Aluminium Company

    Vedanta Aluminium

    Sterlite Energy

    Konkola Copper Mines

    1. Asset Optimization , Reduce Production Cost

    2. Capacity IncreaseGreenfield &Brownfield Projects

    3.1 Consolidate corporate structure

    3.2 Increase direct ownership of businesses

    4. Seek further growth and acquisition opportunities

    Create a world-class metals and mining company

    and to generate strong financial returns

    Overview Markets

    Subsidaries Mission

    Strategy

    Vedanta PLC

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    Vedanta PLC Group Structure

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    Industry: Oil and Gas

    Products: Petroleum and Natural Gas

    Listed: LSE, BSE

    FTSE 250 Index

    Albania, Bangladesh, Greenland, India, Nepal and

    Tunisia

    Largest activities in India

    Cairn India, subsidiary created in 2006

    Production Centres: Andhra, Rajasthan, Gujarat

    Major Discovery:Managala in Rajastahan (2004)

    Largest onshore discovery in 20 years

    1 billion barrel of potential reserves

    Ranked fastest growing energy company in

    2011 by Platts (McGrawHill Division)

    Exploration led growth

    Diversified but focused asset portfolio

    with full cycle capability

    Exposure to transformational potential in

    frontier basins

    Strong balance sheet and financial

    flexibility

    MarketsOverview

    Strategy

    Trivia

    Cairn Energy PLC

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    0

    50

    100

    150

    200

    250

    2009 2010 2011

    Rajasthan

    Cambay

    Ravva

    Cairn India Production Profile ( 000 boepd)

    200

    159

    44

    0 5

    ONGC

    Reliance

    Cairn India

    Oil India

    GSPC

    Niko

    2P Reserves (bn boe)

    2P Reserves

    (bn boe)

    Cairn India

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    Cairn India Reserve Base

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    Cost Advantage

    Higher energy prices can decrease mining divisions profits, the same hike can shoot up

    the profits of the exploration division

    Rajasthan serves as a long term investment to drive future growth

    Expansion and Exploration Opportunities

    India still an emerging untapped market

    35+ prospects were already identified in Cairn acreage

    78% of sediment area in India yet to be explored

    High Quality Management team of Cairn Energy

    Large Resource Base of Cairn India 2P and 2C reserves of 890 mm boe

    Low Cost Producing Assets of Cairn India

    Vedanta Oil and Gas Industry Foray

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    Rationale

    Gives the Vedanta Group its first inroad into the oil and gas sector in India diversifying its riskand smoothen earnings fluctuations

    Creating an Indian natural resources champion: comprehensive footprint across Indias

    resources sector

    Cairn India represents a significant oil and gas exploration and production platform

    Completely independent and self sufficient in both exploration and production capabilities

    Increase Vedanta's existing significant presence in the Indian state of Rajasthan from coal,power towards oil and gas

    Potential to more than double this level of production whilst extending the productionplateau and increasing the resources base.

    Opportunity for Sesa Goa to earn higher yield on excess cash

    Steady trend in commodity prices of the metals it sells and now crude oil, too

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    Synergies

    World class asset and management team

    Leverages Vedantas core skills

    Common operating philosophy: focus on delivery and costs

    Enhances and diversifies Vedantas strong growth profile: Natural progression

    from bulky commodities like coal, power towards oil and gas

    Financial flexibility retained and no impact on existing expansion programmes

    Immediately EPS accretive for shareholders

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    Synergies

    Exploration opportunities

    Revenue generation for future growth

    Reinvestment

    Sustainable development

    The Cairn Board believes that the proposed Transaction delivers benefits in line with Cairns strategic goals

    Cairn India experienced a successful IPO and success in completion of the first phase of Rajasthan development

    The Cairn Board therefore believed that it was an appropriate time to realise further value from its shareholding in CairnIndia, whilst at the same time maintaining exposure to the ongoing business through a significant retained shareholding

    Demand for petroleum products is set tojump to 368million tonnes a year by 2025, from 195 million tonne estimated in2011-12, according to the government

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    Proposed Transaction Highlights-16th Aug 2010

    Acquire 51% to 60% of Cairn India Limited for approximatelyUS$8.5-9.6 billion in cash

    Vedanta Resources will hold 31-40%, Sesa Goa Ltd will hold20%

    Ownership

    Shares to be acquired at a price of Rs 355Transaction Price

    Non Compete fee of Rs 50/share to be paid to Cairn EnergyNon-Compete Fee

    Premium of 21.8% to the closing price of Cairn India sharesof INR332.60 on 11 August 2010Premium

    Break-up Fee arrangement equal to 1% market cap of CairnEnergyBreak-Up Fee

    The Proposed Transaction is expected to close by the firstquarter of 2011Timeline

    h dl

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    The Hurdles

    ONGC has a participating interest of 30%

    Ongoing discussion going on between ONGC and Cairn Energy for Royalty

    payments ONGC would have the first right of refusal if it was an asset deal. However, for a

    controlling share transaction, ONGC does not acquire such rights

    On 28Sep,2011 ONGC agreed to Cairn Vedanta Deal and chose not to issue a

    Counter Offer

    Non-Compete Fee waived off

    The deal will take place in two tranches - an initial sale of a 10% stake in Cairn

    India and a subsequent sale of 30% subject to receipt of necessary approvalsfrom the Indian government

    The Deal was completed on 8th December 2011 following government andONGCs approval

    Revised Transaction Details-28 June 2011

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    Tussle with ONGC

    ONGC delaying NoC

    ONGC and Cairn India started oil drilling operation in Rajasthan under a JV. Cairn owned 70% and

    ONGC 30%.So Cairn had sought an NOC from ONGC for this deal with Vedanta

    When a company digs or drills somewhere, they pay Mining Royalty to the Government. Currently

    ONGC is paying the entire Royalty amount; they want Vedanta to share this cost in future. On this

    issue, ONGC kept the NOC file pending

    With Cairn selling its Indian operations to third company, Government had todeliberate on the matter because

    Cairn was given tax-benefits under NELP

    Rajasthan oil block is THE LARGEST onshore (i.e. on land) oil block of India so Home Ministry had to

    give security clearance, when a foreign company was acquiring majority stakes in it. Govt. of India

    itself owns about 75% in ONGC

    Delay of almost 1.5 years

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    Vedanta Open Offer : Takeover Code, 1997

    Vedanta group was acquiring 40% stake in Cairn

    India from Cairn UK Sub, as per Regulation 10 ofthe Takeover Code, 1997, Vedanta group was

    required to make an open offer

    Since, Sesa Goa had acquired 10.396% of the total

    capital of Cairn India from Petronas at a price of

    INR 331 by way of bulk deal on April 19, 2011, it

    was well within the open offer price of INR 355,

    and therefore, compliant with the

    abovementioned regulations of Takeover Code,

    1997

    The Letter of Offer provided that the Open Offer

    was conditional upon receipt of approvals from the

    shareholders of Sesa Goa and Sesa Resources

    pursuant to Section 372A of the Act

    Open Offer under Takeover Code97

    Impact of new Takeover Code, 2011

    Since the actual transfer of approximately 30%

    stake in Cairn India had not been consummateduntil the introduction of the Takeover Code,

    2011, it meant that Vedanta group would not be

    required to make a fresh offer for the incremental

    mandatory open offer size

    As per Regulation 35 of the Takeover Code, 2011,

    anything done or any action taken or purported to

    have been done or taken under the Takeover

    Code, 1997 prior to its repeal, shall be deemed to

    have been done or taken under the corresponding

    provisions of the Takeover Code, 2011 or shall

    remain unaffected as if the repealed regulations

    had never been repealed

    Therefore, Vedanta group could continue with

    existing offer and was not required to make

    fresh offer under the Takeover Code, 2011

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    Non-compete fee

    Vedanta Resources offered to pay INR 405 per share to Cairn UK Parent, i.e.

    INR 50 per share over and above the price offered to minority shareholders

    Cairn UK Parent has chosen to retain a significant interest in Cairn India

    Its focus now, is to develop exploration potential in Greenland

    Cairn UK Parent is not a potential competitor to Cairn Indias business

    One must also note that the existing management is being retained in Cairn

    India

    Hence, the payment of non-compete fees was largely viewed as

    unjustified. Ultimately, whether the payment of non-compete fee is

    justified or not depends on the facts and circumstances of a particular case.

    the provision of non-compete fees has been withdrawn

    Non Compete Fee Issue

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    Vedanta Resources

    Announcement dated August 16, 2011 stated that the Deal, if completed, would be classified as a

    reverse takeover of Vedanta Resources under the listing rules of the UK Listing Authority

    The Listing Rules further state that a listed company must, in relation to a reverse takeover, comply

    with the Class 1 requirements to send an explanatory circular to its shareholders and obtain their

    prior approval in a general meeting for the transaction

    when a listed company completes a reverse takeover, the FSA of UK generally cancels the listing

    of its equity shares and the company is required to re-apply for the listing of the equity shares and

    satisfy the relevant requirements for listing, subject to certain exceptions and conditions

    Accordingly, UK FSA cancelled the equity shares of Vedanta Resources from the official list and

    from trading on the LSE at the request of Vedanta Resources on December 8, 2011

    Cairn UK Parent

    Cairn UK Parent in its announcement dated August 16, 2011 stated that the Deal, if

    completed, would constitute a Class 1 transaction under the Listing Rules

    A listed company is required, inter alia, to send an explanatory circular to its shareholders

    and obtain their prior approval in a general meeting for the transaction

    Triggering of Provisions - UK Listing Authority

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    Valuation of Cairn India as on 16th Aug 2010

    CMP Rs. 333

    Beta 1.052Week High/Low 358/230

    Premium as per CMP6.6%

    Premium as per IV12.7%

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    Market Reaction

    Following the

    announcement of the Deal,

    Vedanta Resourcesplunged by 5.5% on the

    LSE

    Following the

    announcement of the Deal,

    Cairn India plunged by

    7.2% on the BSE

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    Its senior management seemed to give transaction a thumbs-down

    2/5th of the company's 12-member top management team had left,

    while 1 joined Sanjay Singh replaced Kumar

    Role of the top management in the premium

    Key employees need to continue if there is to be no risk to (Cairn's)

    future prospects from management change

    There is a definite premium on people in this business

    Along with these exits, much of the management premium' that

    Agarwal paid for Cairn walked away

    But, even though much of the top management premium has been

    destroyed, the real value drivers in this business are the geo-

    technical people down the line

    Change in ownership one of the reasons for leaving the company

    While Cairn India is a professionally-managed company today,

    Vedanta could change the texture of the company to a promoter-

    driven one

    Think differently, behave differently, function differently, concern if

    styles can coexist

    Integration Issues

    l

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    With demand for oilmen growing 12-14%/year, the company needed to retain its best people

    Employee Concerns

    Job security, element of uncertainty. there are concerns role in the future

    Possible changes in systems and work culture

    Vedanta has no experience in oil, which is a very complex business with high risks and

    rewards.

    Vedanta's policy for employee remuneration for Cairn staffers

    Many of them had generous stock options

    Rahul Dhir called "townhall meetings"

    speaks directly to a gathering of employees at the HQ

    those in remote locations tele-connected to the suave CEO

    Employee Concerns

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    EBITDA Growth & Diversification

    IL J d

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    Recent PIL Judgement

    The petitioner, a Bengaluru resident Arun Kumar Agarwal, had challenged the approval granted by the Centre on January

    24, 2012 for the acquisition of stake in CIL by Vedanta group. Pleaded that

    ONGC be directed to exercise its right of pre-emption over sale of shares of CIL on the same terms

    A direction to CBI to probe against company for not exercising legal rights under RoFR and giving clearance to deal.

    PIL Details

    The Supreme Court on Thursday, 9 May 2013, upheld $8.5 billion Cairn-Vedanta deal, saying that the Centre and ONGC not

    exercising the right of pre-emption over sale of shares of Cairn India Limited (CIL) was a prudent commercial decision.

    It considered various commercial and technical aspects flowing from the Production Sharing Contract (PSC) and also its

    advantages that ONGC would derive if the Cairn and Vedanta deal was approved

    The court passed the order on a PIL alleging that there was a clause in the agreement between Cairn group and ONGC that

    in case Cairn Group wanted to sell its shares in Cairn India, it would first offer the same to ONGC and this right was "not

    asserted" by the PSU and the Centre.

    "The report of SBI Caps, after making a detailed financial analysis, also supported the decision taken by the ONGC. The

    decision to grant no objection to the transfer of shares of CEIL (Cairn Energy India Pvt. Ltd.) from Cairn to Vedanta was also

    on the basis that the proposed price of share was at Rs.355 per share, was well in excess of its intrinsic value as were

    evaluated by SBI," the bench said, adding that SBI had evaluated each share

    Supreme Court Response

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