In a move to cut debt at Anil Agarwal group, India's largest private miner Vedanta will absorb oil firm Cairn India in a $2.3 billion all-share deal to create India's largest diversified natural resources company.
Shareholders in Cairn India, the country's top private oil producer, will get one ordinary share and 7.5 per cent redeemable preference share of Vedanta with a face value of Rs 10.
That implies a premium of 7.3 per cent to Cairn's Friday closing price.
Vedanta will use Rs 16,867 crore cash lying with Cairn to pay off part of its Rs 77,752 crore debt.
Post-merger, London-listed parent Vedanta Resources' holding in Vedanta will drop to 50.1 per cent from 62.9 per cent.
"The merger is the second step in the series that started in 2013 towards simplification of the corporate structure," Vedanta chief executive Tom Albanese told PTI in an interview.
Vedanta, previously known as Sesa Sterlite, in 2013 consolidated its iron ore mining business by merging Sesa Goa with Sterlite Industries, which ran copper and aluminium businesses.
"This merger is about creating long term value that is not only good for Vedanta shareholders but also good, attractive and compelling for Cairn India shareholders," he said.
The merger will help Cairn spread its risk from volatile oil business to other metals and commodities.
"I am of the belief that diversified producers have enjoyed better shareholder returns than pure plays. If you look at how global oil and gas business has really suffered because of oil prices (fall in 2014), it clearly demonstrates that diversified groups are better than pure plays. The merger derisks the business and stabilizes revenue stream," he added.
The long-anticipated move would take Agarwal a step closer to achieving his ambition of building an India-integrated resources group in the mould of Rio Tinto or BHP Billiton.