n August 2010 Vedanta Resources Plc (“Vedanta”), a company listed on the London Stock Exchange, announced it proposal to purchase 51% controlling stake in Cairn India (“Cairn India”), for a consideration of (reportedly) USD 9.6 billion. Cairn India is a subsidiary of Cairn Energy Plc, a listed entity in the United Kingdom, a leading player in the Indian oil and gas industry. The deal was structured to include a non-compete fee into the price of the shares of the promoters of Cairn India. One of the advantages on Cairn-Vedanta deal having been finalized prior to the Revised Takeover Regulations coming into force that the parties were able to retain the non-compete fee component incorporated into price of the promoter’s …show more content…
Partly the reason lies in the very nature of the two deals. The chief difference between the RIL-BP and Cairn-Vedanta deals is that the former is a farm-out agreement and does not include transfer of control. On the other hand, the Cairn-Vedanta deal is a transaction between two London-listed companies and the money will not flow into India.
The Reliance-BP deal, on the contrary, will be the single-largest foreign direct investment (FDI) worth $7.2billiion in the petroleum sector. The $12billion FDI announcement made by Korean steel major POSCO in 2005 has failed to take off.
In the case of Cairn-Vedanta deal, Cairn Energy is transferring the control of its Indian Unit. The buyout will see the London-Listed mining group, which is led by NRI tycoon Anil Agarwal, take charge of operations with no any experience in the soil sector.
While in the RIL-BP deal, Reliance will continue to remain in charge of operations and retain majority stake. BP is also regarded as the work leader in the oil industry. Additional difference is that there is no third company to pre-empt the …show more content…
Kearney stated that: “Strategic approaches to M&A are crucial to address the extreme cost and cash-flow pressures that are experienced by Oil & Gas players. Our analysis and discussions with the industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next 6 to 12 months”.
In his opinion the window of opportunity may be shorter than expected and will be driven by oil price expectations. The companies with strong cash flow and healthy balance sheets will be able to leverage opportunities, whereas others will need to define strategies in order to be able to survive.
Most players in the industry can receive benefit from a strategic approach to mergers and acquisitions, also including National Oil Companies (NOCs), International Oil Companies (IOCs), service sector businesses, financial investors and independent oil companies,. The expectation is to see the largest M&A deal value as well as largest share of deals in the upstream segment, with noteworthy value increases in the midstream and among oil service providers. The companies across various sectors that best anticipate and prepare to take benefit of the volatile and fast moving market will be in a much stronger position than the others who are unable to do