Vedanta merges units to create India’s largest resources firm (Lead)

February 26th, 2012 - 1:09 am ICT by IANS  

Mumbai, Feb 25 (IANS) Anil Agarwal-promoted Vedanta Resources Saturday said it will merge its Indian subsidiaries into a single unit this year to create India’s largest natural resources firm with a market capitalisation of around $20 billion.

And the new company’s shares would be listed in India and New York.

It said two major subsidiaries of the group, non-ferrous metals producer Sterlite Industries and iron ore miner Sesa Goa, will be merged into a single entity — Sesa Sterlite.

The unlisted units of the group, Vedanta Aluminium and Madras Aluminium, will also be merged into Sesa Sterlite that will become the world’s seventh largest global diversified natural resources major by earnings before interest, taxes, depreciation, and amortisation (EBITDA) basis.

“We now have one Vedanta, which is a holding company and one operating company which will be called Sesa Sterlite, it will put all companies together,” Agarwal, chairman of Vedanta Resources Plc, said at the press conference here.

The consolidation, which is likely to be completed by the end of the this year, is expected to lead to significant synergies, including economies of scale, more efficient movement of group cash, improved allocation of capital and corporate cost savings, including tax efficiencies.

Asked about the valuation of the new entity, Agarwal said: “Our assumption is it will be around $20 billion.”

The board of directors of the company at a meeting held Saturday approved issue of three shares of Sesa Goa for every five shares held in Sterlite.

After the consolidation, Vedanta will own 58.3 percent in Sesa Sterlite. The group’s 79.4 percent shareholding in Konkola Copper Mines in Africa will continue to be directly held by Vedanta.

Vedanta’s direct holding of 38.8 percent in oil producer Cairn India would also be transferred to Sesa Goa, together with the associated debt of $5.9 billion at cost.

However, the group’s holding in Hindustan Zinc and Bharat Aluminium Company, in which the government also holds a part stake, will remain separate.

This is the group’s second attempt at restructuring business. A similar effort in 2008 had failed after investor opposition to the plan and valuations of some of Vedanta’s African assets.

Both Agarwal and Group Chief Executive M.S. Mehta sought to reassure minority shareholders, saying the restructuring would be earnings-accretive in the first year itself.

“Sesa Sterlite will be the principal operating company in the group and with its high quality assets, growth projects and strong management, it is well placed to create value for all shareholders,” said Agarwal.

“Our shareholders will benefit from unparalleled growth across metals, mining and oil and gas, besides, the increased synergy,” added Mehta.

Mehta said the merger was expected to generate cost savings of Rs.1,000 crore ($200 million) per annum.

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