power m&a in india

Mergers & Acquisitions

Mergers & AcquisitionsCases from the Energy & Mining Industry in India

Contents1.Mergers & Acquisitions-An Introduction21.1Companies got for M&As mainly for the following motives:21.2Examples of M&A deals abroad21.3Examples of M&A deals abroad in India22.Case Studies from the Energy & Mining Industry22.1STERLITE - SESA GOA MERGER22.2ACQUISITION OF SHARES OF TATA BP SOLAR LIMITED BY TATA POWER COMPANY LTD:62.3ONGC AND IMPERIAL ENERGY MERGER:7

1. Mergers & Acquisitions-An IntroductionMergers and acquisitions (M&A) as defined is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.1.1 Companies got for M&As mainly for the following motives: Economy of Scale Economy of scope Increased revenue/market share Cross-selling Synergy Gaining tax advantage Diversification1.2 Examples of M&A deals abroadYearPurchaserPurchasedTransaction value (in USD)

2011GoogleMotorola Mobility9,800,000,000

2011MicrosoftSkype8,500,000,000

1.3 Examples of M&A deals abroad in India1. Tata Steels mega takeover of European steel major Corus for $12.2 billion. 2. Vodafones purchase of 52% stake in Hutch Essar for about $10 billion. 3. Hindalco of Aditya Birla groups acquisition ofNovellis for $6 billion. 2. Case Studies from the Energy & Mining Industry2.1 STERLITE - SESA GOA MERGEROn 25th February 2012, Sterlite Industries (India) Ltd (Sterlite together with its subsidiaries), Sesa Goa Ltd (Sesa Goa together with its subsidiaries) and Vedanta Resources Plc (Vedanta together with its subsidiaries, the Group) announced a merger of Sesa Goa and Sterlite. The new name proposed for the consolidation is Sesa Sterlite.

The highlights of this merger were: For every five existing Sterlite shares, 3 Sesa Goa shares to be issued. Vedanta Aluminium Limited VAL and the Madras Aluminium Company Limited to be 100% consolidated into Sesa Sterlite. Vedantas direct holding of 38.8% in Cairn India Limited to be transferred to Sesa Goa, together with the associated debt of $5.9 billion at cost. Post transfer, Sesa Sterlite will have a 58.9% shareholding in Cairn India. Post consolidation Vedanta will hold 58.3% share holdings in Sesa Sterlite. The groups 79.4% shareholding in Konkola Copper Mines Plc. will continue to be held by Vedanta. Sesa Sterlite will be listed in India, with American Depositary Shares (ADS) listed on the NYSE.About SterliteSterlite is one of Indias largest non-Ferrous metals and mining companies. It produces commercial energy too and has operations in India, Australia, Namibia, South Africa and Ireland. The company has a strong organic growth pipeline of projects and is listed on BSE and NSE of India and the NYSE in the US.About Sesa GoaSesa Goa is Indias largest producer and exporter of iron-ore in the private sector. The company is a majority owned and controlled subsidiary of Vedanta, the London listed FTSE 100 diversified global natural resources major.Sesa Goa has iron ore mining operations in Goa and Karnataka. In August 2011 Sesa Goa acquired a 51% stake in Western Cluster Limited, a Liberia based company engaged in developing the Western Cluster, a network of iron ore deposits in West Africa, into a large integrated iron ore project. Sesa Goa is also involved in the manufacturing of pig iron and metallurgical coke.

About Vedanta

Vedanta is a London listed FTSE 100 diversified global natural resources major. The Group produces aluminium, copper, zinc, lead, silver, iron ore, oil & gas and commercial energy. Vedanta has operations in India, Zambia, Namibia, South Africa, Liberia, Ireland, Australia and Sri Lanka.

Benefits expected from the Merger: Sesa Sterlite is expected to be 7th largest global diversified natural resources major by EBITDA. World-class, low cost assets in close proximity to high growth markets. Greater scale and diversification will reduce volatility of earnings. Capacity to be expected to double in the next 3 years. Cash generative business supported by a very strong balance sheet Significant synergies expected from the simplification of the group generating a cost saving of INR 1000 Crore p.a. The merger is expected to give rise to increased economies of scale, greater technical expertise, efficient movement of group cash and earnings accretive for Sesa Goa, Sterlite and Vedanta shareholders.Proposed Transaction steps: Sesa Sterlite will be formed through the issue of 3 Sesa Goa shares for every 5 existing Sterlite shares via a scheme under Indian law. The merger has to comply with all applicable laws, legal requirements of all the jurisdictions in which the distribution is made, as well as the rules and regulations of all applicable stock exchanges. Consolidation of VAL, via merger of Ekaterina Ltd ( a Mauritius holding company for Vedantas 70.5% shareholding in VAL) into Sesa Sterlite and the issue of 72.3 million Sesa Goa shares to Vedanta after obtaining all necessary approvals. The equity value of VAL equates to INR 2332 crore based on Sesa Goas closing price on 24th Feb 2012 of INR 227 per share. MALCO to merge into Sesa Sterlite, through the issue of 78.7 million Sesa Goa shares to MALCO shareholders after obtaining all necessary approvals. Based on the same price on 24th Feb 2012, the value of MALCO equates to INR 1790 crore, including the value of MALCOS existing 3.6% shareholding in Sterlite. As part of the merger, this existing shareholding in Sterlite to be cancelled by Sesa Sterlite. Post the merger of Sesa Goa and Sterlite, Sterlite Energy Ltd and VALS alumimiun business will be merged into the consolidated Sesa Sterlite. All the transaction steps are subjected to schemes of arrangement under Indian and Mauritian Law and are inter-conditional. After obtaining all necessary approvals, the shares to be issued by Sesa Goa shall be listed on the BSE & NSE and its ADS shall be listed on The NYSE, which will be consistent with Sterlites existing listing arrangements.

Sesa Goa Ltd-merger deals:DateDeal typeTarget companyPrice/Cost swap ratioEvent dateEvent name

25-Feb-12MergerSterlite Energy Ltd.0.01-Jan-11Merger Date w.e.f

25-Feb-12Board of Directors approval

25-Feb-12Stock Exchange Announcement

19-Jun-12High Court Directed Shareholders Meeting

19-Jun-12Shareholder's approval

25-Feb-12MergerSterlite Industries (India) Ltd.3:051-Apr-11Merger Date w.e.f





25-Feb-12MergerEkaterina Ltd. [Merged]1:2525-Feb-12Board of Directors approval


1-Apr-12Merger Date w.e.f



3-Apr-13High Court Approval Date

25-Feb-12MergerMadras Aluminium Co. Ltd.7:1025-Feb-12Board of Directors approval




25-Feb-12Sale of assetVedanta Aluminium Ltd.01-Apr-11Transfer date w.e.f.





Approvals:Approvals are sought from: Shareholders & creditors of Sesa Goa, Sterlite, VAL & MALCO Shareholders of Vedanta for the merger as the transcations are pursuant to the listing rules of UK Listing Authority BSE & NSE The CCI Foreign Investment Promotion Board, India Jurisdictional High Courts at Mumbai and Madras in India and Supreme Court of Mauritius. Other necessary approvalsCurrent scenario:However on 3rd April, 2013, The Vedanta group moved closer towards the creation of the mega natural resources company with the Bombay High court approving Sesa-Sterlite creation.2.2 ACQUISITION OF SHARES OF TATA BP SOLAR LIMITED BY TATA POWER COMPANY LTD:Tata Power Company Ltd (TPCL) is Indias largest integrated private power player with a significant international presence. It has its securities listed on NSE & BSE. TPCL is engaged in generation, transmission, and distribution and trading of power.Tata BP Solar Ltd is a public ltd company incorporated under the Companies Act, 1956, is a joint venture of BP Solar and Tata Power. It has a solid track record of growth and performance since its inception in 1989. The company manufactures solar photovoltaic cells, solar modules, products and systems at its excellent plants in Bangalore as well as delivers turnkey solar solutions for end customers. It has touched the lives of more than 14 million people through solar power applications such as village lighting, water pumping as well as for businesses such as telecommunications, railways, banks, defence establishments etc. The company has pioneered the grid-connect solar photovoltaic systems in India. It regularly exports its products & solutions. As per studies done by various agencies, the solar market in India is expected to go to anywhere between 800 to 1200MW by the year 2014-15. This provides ample opportunity for Tata BP Solar to grow its business in India.The Competition Commission of India (CCI) while assessing the proposed combination observed that the two companies i.e. the Acquirer and the Target were not engaged in production, supply, distribution, storage, sale or trade of identical or similar goods or provisions of services. CCI also observed that due to the entry of new players, the share of the target company in solar energy generation has decreased from 30% to 12% during 2007-2011.For both the Acquirer and the Target Company, engaged at different stages of the production chain in different markets of power generation, their individual or combined share in the respective markets was not substantial. Thus, the CCI approved the proposed combination as that will not make any significant adverse effect on competition.Tata Power accordingly announced the signing of a share purchase agreement with BP Alternative Energy Holdings to purchase their 51% Equity and Preference shares in the Joint Venture- Tata BP Solar (the Company). On completion, Tata Power would own 100% of the company. The RBI approvals are to be sought too. Tata Power and BP agreed that the Company will continue to enjoy access to certain BP technology until 2013. Tata Power and BP had also agreed for a transition period for product and non-product related rebranding and certification.In June 2012, Tata Power completed the share purchase agreement with BP Alternative Energy Holdings to acquire the BPs 51 percent equity and preference shares in the Joint Venture Tata BP Solar. Hereby, Tata Power Solar, a 100 per cent Tata-owned Tata Power subsidiary, has a range of innovative systems and solutions for rural and commercial markets. It provides complete EPC solutions for large grid-connected solar power plants. It provides solutions to large industrial clients like railways, defence and telecom. It has electrified over 500 villages and installed over 100 solar plants in the tough terrains of Ladakh. Pan-India, Tata Power Solar has more than 200 dealers, 1000 sub-dealers and 30 authorised service centres catering to the needs of different customer segments. It is also represented in the neighbouring countries of Nepal, Bhutan, Bangladesh, Afghanistan and Sri Lanka.2.3 ONGC AND IMPERIAL ENERGY MERGER:In 2009, the Oil and Natural Gas Corporation (ONGC) took control of London Stock Exchange-listed Imperial Energy, a British Oil & Gas company for USD 2.1 billion after a whopping 96.8% of London-listed firms total shareholders accepted the takeover offer. ONGC Videsh Ltd (OVL), the overseas arm of the state explorer, needed 90% shareholders to approve the deal as that would result in the delisting of Imperial. The company was delisted from LSE after other formalities were done with. Imperial is a Leeds-based firm that has oil producing blocks in Tomsk region of Western Siberia in Russia and Kastanai in north-central Kazakhstan. It was then the biggest ever acquisition by OVL.ONGC then expected a 10-fold increase in production at Imperial Energy in Russia.Impact:But two years down the line from 2009, ONGC found it struggling with the acquisition of Imperial Energy. The Comptroller and Auditor General of India in 2011 criticized the acquisition of Imperial Energy. The governments auditor said ONGCs overseas unit had incurred a loss of `1,182.14 crore between January 2009 and March 2010 due to its inability to achieve the estimated oil production of 35,000 bpd. In 2012, ONGC also thought of even retreating from the Imperial buy terminating the agreement. However currently it has decided not to invest additional money in Imperial Energy until it has a suitable strategy in place.

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