1. PRESENTED TO:
VEDANTA AND CAIRN DEAL
MR S. RADHAKRISHNA
PRESENTED BY:
ADVANCED STRATEGIC
MANAGEMENT
TEAM SARTHAK
12104- SAUMYA RANJAN KHATOI
12112- SULGADLE MANJUNATH
12138- GAURAV D. JHUNJHUNUWALA
12140- HARISH K.P.
12182- SARTHAK ROHATAGI

2. OVERVIEW OF THE DEAL
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Vedanta Resources is in talks with Cairn Energy, which
has a 62.4% stake in Cairn India, to buy a stake in the
unit
Cairn is country’s fourth-largest oil and Gas Company,
valued at $13.6 billion, valuing Cairn Energy’s 62.4%
stake at $8.5 billion
Vedanta wants to buy between 40 and 51% of Cairn
India from Cairn Energy and are offering to buy up to
20% from other shareholders for a total stake of 51 to
60%

3. ABOUT VEDANTA RESOURCES
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Largest mining and non-ferrous metal company in India
Headquarter is in London, UK
Diversified in natural resources basically in Zinc, Lead, Silver,
Copper, Iron Ore, Aluminium, and Power
Vedanta Operated across India, Sri Lanka, Zambia, Namibia,
South Africa, Liberia, Ireland, and Australia
In India Vedanta Operated through:
•
•
•
•
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Copper - Sterlite Industries (India) Ltd.
Zinc - Hindustan Zinc Limited.
Aluminium - Bharat Aluminium Company Ltd., Vedanta Aluminium
Ltd.
Iron ore - Sesa Goa Ltd.
Oil & Gas - Cairn India Ltd.

4. CAIRN INDIA LIMITED
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Cairn Indian is the largest crude oil producer in India
Cairn India is one of the most significant oil and gas
exploration and Production Company in South Asia
Oil and gas is currently being produced from Rajasthan,
Ravva and Cambay
In Rajasthan Cairn India is the operator with 70%
participating interest
Its joint venture (JV) partner, ONGC, has the remaining
30% participating interest

5. NEED FOR THE DEAL
From Vedanta Perspective:
 Vedanta’s strategy is to create a world-class metals and mining
company, using four approaches: asset optimization and cost
reduction, capacity expansion, consolidating its holdings and
seeking acquisitions
 Want to buy a stake in Cairn India to diversify into Oil & Gas
 Believes it can earn a better return on investment than the
market rate of return in the long term
( eg. of mining major
BHP Billiton Ltd.’s)

6. 

Could act as hedge for Vedanta Resources: When mining
division’s profits decline due to higher energy prices, the
exploration division’s profits will go up
Cairn has successful exploration business that is being scaled
up, very little net debt and positive cash flows

7. From Cairn’s perspective:
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Cairn India would be able to utilize Vedanta’s core skills of
project management and development of reserves and
resources
Cairn Energy ltd. needs cash for Greenland exploration

8. ISSUES PERTAINING TO THE DEAL
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Funding for the proposed transaction: Huge acquisition
cost of between $8.5 billion and $9.6 billion (Rs40,00045,000 crore)
Cash on hand is $7.2 billion
Debt will shoot up after the transaction
Credit rating agencies have downgraded Vedanta as the
firm plans to borrow to finance the acquisition.
Fitch Ratings downgraded Vedanta’s rating from ‘BBB-’
to ‘BB+’

9. 
Cairn has signed a production sharing contract (PSC) with the
government of India for an oil exploration block would need
the government’s approval if some stake in the field or the
company were sold
 Approval from state-run explorer ONGC, which has a 30%
stake in Cairn India’s Rajasthan oil block called RJ-ON-90/1, is
also crucial for any change of ownership at British firm’s
Indian unit

10. SWOT FOR VEDANTA
STRENGTHS
 Largest mining and non-ferrous
metals company
 Excellent Product Portfolio
 Asset optimization and cost
reduction skills
 Have many Subsidiaries
WEAKNESSES
 Vedanta shares were down 4.6% as
analysts questioned its ability to
afford another big acquisition
 Funding is the main concern
 No prior experience in oil
exploration
OPPORTUNITIES
 First move into oil and gas
 It could act as a hedge
THREATS
 Other companies interest in buying
Cairn
 Regulatory hurdles from
government
 Hurdle from ONGC

11. PROJECT OVERVIEW
Project would concentrate on devising Strategies for Vedanta if
everything goes against it. The following issues are there which need to
resolved.
 Diversification into Oil & Gas Sector
 Put and Call options
 Right of Pre-emption and First Refusal
 Managing the Royalty Payment Issues
 Managing goals of different stakeholders

12. DIVERSIFYING INTO OIL & GAS SECTOR
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Cairn is a unique exploration and production platform
Cairn (India) world-class resource base includes interests in
nine blocks in India and one in Sri Lanka.
The block in Rajasthan is India’s largest oil discovery in the
last 20 years
Lack of experience in oil & gas industry
Vedanta group can use four components optimization and cost
reduction; capacity expansion; consolidating its holdings; and
acquisitions

13. APPLYING THE VRIO FRAMEWORK

14. 
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Question of Value
Question of Rarity
Question of Imitability

15. Strategic Position and Action Evaluation (SPACE) Matrix
The SPACE matrix evaluates different variables and assigns them a score
considering how important they are for the situation of any company
Internal Strategic Dimensions
S. No.
1
2
3
4
Financial Strength (FS)
Return on capital employed of 17.5%
Free cash flow up 39.5% at US $ 3.5 Billion
Revenue up 7% to US $ 15 billion
EBIDTA up 21.4% to 32.6%
Total
Average
Rating
4
6
5
5
20
5
S. No.
Competitive Advantage (CA)
Rating
1
2
3
4
High quality assets
Low cost of production
Excellent product portfolio
Skill and expertise
Total
Average
-2.0
-1.0
-3.0
-2.0
-8.0
-2.0

16. External Strategic Dimensions
S. No.
Environmental Stability (ES)
Rating
1
Technological Know How at the Firm Level
-1.0
2
Competitive Pressure
-2
3
Barriers to entry into market
-2.0
4
Intervention of the Government
-5
Total
-10.0
Average
-2.5
S. No.
Industry Strength (IS)
Rating
1
Profit Potential
5
2
Growth rate
3
Total
8
Average
4

17. Directional vector coordinates:
X-axis: CA rating+ IS rating = (-2) + 4 = 2
Y-axis: FS rating + ES rating = 5 + (-2.5)= 2.5
Financial Stability
Aggressive
Competitive Advantage
Industry Strength
Environment Stability

18. Put and Call Options

Vedanta & Cairn had entered into put and call arrangements in
relation to a part of the equity shares of Cairn India that may be
retained by the cairn Group.
 The put and call obligations related to a number of the shares of
Cairn India equal to the shortfall between the number of Sale
Shares actually acquired by the Acquirers and 51% of the Voting
Capital, subject to a maximum of 10% of Voting Capital of Cairn
India.
 After July 31, 2012 the first of put and call options was
exercisable for duration of 6 months and the other after July 31,
2013 for duration of 6 months. The exercising price is Rs. 405
per share in both the cases.

19. Right of Pre-Emption and First Refusal

If the cairn group proposed to transfer any of the shares that they would
continue to hold after the period of 6 months from closing, the Vedanta could
exercise a ‘right of first refusal’ in respect to those shares at INR 405 per
share.
Managing the Royalty Issue
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Cairn has also a pending dispute with ONGC on the payment of royalty. It
has declined to share the royalty payments to the government as it was paid
by ONGC since beginning as per the contract.
Indian Government has agreed to restrict ONGC’s royalty payment in
proportion to their holding and not for the entire block.
This issue has been continuing since five or six years. In Barmer Block,
ONGC paid 100 per cent royalty and tax on the entire crude production.

20. Managing Goals of Different Stakeholders
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Shareholding Pattern of Cairn India Prior to the deal
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Cairn Energy 62.7% stake
Petronas 14.94 % stake
Others 22.7 % stake
Shareholding Pattern of Cairn India Prior to the deal
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Vedanta Resources 38.83% stake
Cairn Energy 21.84% stake
Sesa Goa 18.45 % stake
Sesa Resources 1.72 % stake
Others 19.16 % stake

21. STAKEHOLDER ENGAGEMENT FOR VEDANTA
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Vedanta Sustainability Framework –
Group’s Social Policy and supporting Technical Standards
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Stakeholder engagement Technical Standard is aligned with
international best practice
Committed to effectively responding to stakeholder feedback
Ex-http://www.vedantaresources.com, sustainability@vedanta.co.in
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455 emails have been received between 1st April 2012 and 31st
March 2013
28 -information about the company
102 -goal of finding employment.

22. STAKEHOLDER ENGAGEMENT AND DISCLOSURE PLAN
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Identification, analysis and engagement of stakeholders in all
stages of the Project lifecycle in a proactive manner
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Categorization of identified stakeholders on the basis of their
engagement with the company
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Identification of representatives of different categories of
stakeholders
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Identification of stakeholders who are at a risk of being
disproportionately-affected by the operations of the business
with special emphasis on vulnerable communities
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Devising engagement mechanisms for each stakeholder group

23. STRATEGY FOR THE COMBINED GROUP
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Create an Indian natural resources champion with a
comprehensive footprint across India’s resources sector
To utilise the Group’s skills to accelerate the exploration,
development and production of Rajasthan’s oil and gas assets.
Engage a large number of different stakeholders through
investor relations, human resources, community relations and
government relations departments
Extending Portfolio into Oil & Gas for vedanta & further
enhance its position in Rajasthan for cairn India

24. Benefits of the Deal
• Its position in India: Cairn India has huge experience in exploring,
discovering, operating production assets in India for many years with
ONGC, Government of India and state governments, regulators and key
industry participants.
• Development and operational expertise: Cairn India has a proven track
record of developing resources with low cost in oil & gas sector.
• Solidifies Vedanta’s position: Vedanta group intensifies its position in
Rajasthan in private core sector by getting into energy portfolio along
with Zinc.

25. Key Takeaways of the Deal
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Cairn Energy is a significant shareholder in Cairn India, with 10.6-21.6%
stake. Further, Vedanta would have a pre-emptive right over any subsequent
sale by Cairn Energy of its remaining stake in Cairn India, hence such
disposal would result in the recipient of the shares holding >20% of the issued
share capital of Cairn India.
Cairn Energy and Vedanta have also entered into reciprocal put and call
arrangements. Put and call options were written to enable Vedanta and Cairn
Energy to ensure that minimum of 50% Of Cairn India is acquired from Cairn
Energy at Rs405/share.
Cairn energy (including cairn India) wants to focus more on its core
competency which is exploration apart from keeping more profitable units
alive. Cairn Energy’s strategy is to add value through exploration. Most of the
sale proceeds are return to shareholders as planned by Cairn energy and
remaining part of the cash use for exploration elsewhere and appraisal
programs for the ongoing activities.
To maintain balance in its portfolio, Cairn Energy doesn’t want to sell the
entire stake. This was to protect itself from Greenland exploration portfolio
which is a high risk-return game.`

26. 
Though the government approvals are routine, it could be hindrance many a
times as government structures & policies keep changing.
 Vedanta is only going to provide guidance with the present management of Cairn
India continuing in the board. Further, it stated it has no intention to de-list Cairn
India.
 Depending on the estimated oil and gas in place resources, Vedanta is aiming to
produce more than the existing capacity in Rajasthan asset. However, Vedanta
doesn’t have any prior oil & gas experience to claim to produce better than the
current production.