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Sterlite And Sesa Goa To Merge

Sterlite And Sesa Goa To Merge
2/27/2012 1:06 AM ET

In a move to consolidate its business structure, the Vedanta Group has announced that its Indian subsidiaries Sterlite Industries (India) Ltd., together with its subsidiaries and Sesa Goa Ltd. along with its associates would be merged into a single entity christened "Sesa Sterlite."

The consolidation, announced on Saturday, is expected to cut costs, increase cash flows and improve economies of scale, besides creating it as the world's seventh largest diversified natural resources major in operating profit terms.

The transaction involves merger of Sterlite into Sesa Goa in the swap ratio of three shares of Sesa Goa, the country's largest iron ore exporter, for every five existing Sterlite shares.

Unlisted company Vedanta Aluminium Ltd. (VAL) and Madras Aluminium Co. Ltd. (MALCO) will be 100 percent consolidated into Sesa Sterlite. The transaction also involves transfer of Vedanta's direct holding of 38.8 percent in Cairn India Ltd. to Sesa Goa, together with the associated debt of $5.9 billion, at cost. With a 20 percent holding in Cairn already, Sesa Goa's stake will increase to 58.9 percent. The transaction is subject to regulatory and shareholder approvals.

The consolidation is expected to be earnings accretive for Sesa Goa, Sterlite and Vedanta shareholders immediately and significant synergies are expected from the move, resulting in cost savings of Rs.1,000 crore per annum. Post consolidation, Vedanta will own a 58.3 percent stake in Sesa Sterlite.

Besides, the Group's 79.4 percent shareholding in Konkola Copper Mines Plc. Will continue to be directly held by Vedanta, the company said.

Sesa Sterlite will have exposure to zinc-lead-silver, iron ore, oil and gas, copper, aluminium and commercial power with assets located in India, Australia, Liberia, South Africa, Namibia, Ireland and Sri Lanka. This world class asset base will benefit from the previously announced capex program that is largely invested, with capacity expected to double in the next three years.

The Board of Sesa-Sterlite will have a majority of independent directors. The management team of Sesa Sterlite will include members of the current management team, the company said.

Sesa Sterlite will be listed in India with American Depositary Shares (ADS) listed on the New York Stock Exchange, it said.

The group's holding in Hindustan Zinc Ltd. (HZL) and Bharat Aluminium Co. Ltd., (BALCO) in which the government has a stake, will not be part of the merger. Sterlite, which is seeking to buy the government's remaining stake in HZL and BALCO might complete the transaction this year, the company said. Sterlite bought a majority stake in BALCO in 2001 and in HZL in 2002.

Vedanta Chairman Anil Agarwal said, "Sesa Sterlite will be one of the largest global diversified natural resources majors. The transaction is a natural evolution, leading to simplification of the Group's structure. Sesa Sterlite will be the principal operating company and the vehicle for future mergers and acquisitions in the group. We expect to close the transaction in 2012."

At the BSE, Sterlite Industries shares are currently trading at Rs.116.95, down by 1.43 percent, while the script of Sesa Goa is trading at Rs.204.50, down by 10.05 percent from the previous close. Vedanta Resources closed Frdiay's trading at 1,500 Pence, up by 4.53 percent.

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by RTT Staff Writer

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