India's Sesa Goa May Merge With Sterlite Industries

London-listed Vedanta Resources is planning to merge two of its units in India, Sesa Goa and Sterlite Industries, reports Business Standard. Sesa Goa is a leading producer and exporter of iron ore with a current market capitalization of around Rs 214.41 billion ($4.2 billion), while Sterlite Industries is involved in copper and aluminum production with a current market capitalization of Rs 431.58 billion ($8.6 billion).

Vedanta Resources had acquired Sesa Goa for Rs 40.70 billion ($814 million) in 2007 from Japan’s Mitsui & Co. Limited.

Until December 2011, the promoters owned 53.3 percent of Sterlite Industries and 55.1 percent in Sesa Goa, held through various investment and finance companies of Vedanta. Sterlite, in turn, owns 64.9 percent in Hindustan Zinc Ltd (HZL).

The proposed exercise, if it happens, will likely create a giant metals and mining firm with the third-biggest profit in the Indian private sector after oil giant ONGC and private giant Reliance Industries. It will have a combined market cap of Rs 660 billion ($13.2 billion).

Vedanta Resources attempted a similar merger exercise in September 2008, when it had decided to restructure its three commodity businesses of copper, aluminum and iron ore under a single umbrella. However, it had to withdraw the proposal following widespread resistance from investors.

This time, too, the company intends to put all its operations under a single operating arm, but even now the investors are responding negatively to the news of a merger.

Shares of Sterlite Industries and Sesa Goa plunged sharply amid speculation of a merger between the two companies. In a volatile day of trading, Sterlite shares fell by as much as 7.48 percent to touch an intra-day low of Rs 118.80 ($2.37) on the Bombay Stock Exchange (BSE). The stock finally closed at Rs 119.90 ($2.39), down 6.62 percent.

Sesa Goa’s stock also slipped by 5.55 percent to Rs 233 ($4.66) a share during the day. Later it recovered some of the losses and closed at Rs 236.40 ($4.72), down 4.18 percent. Shares of other Vedanta Group firms — Hindustan Zinc and Cairn India — also closed in the red on Feb. 22.

It is understood that under the new structure, Sterlite would hold all Vedanta’s metals businesses — aluminum, copper, zinc and iron ore — in India. Even Sesa’s iron ore operations will come under it. According to market sources, a share swap in the ratio of 2:3 is being talked about. In other words, a shareholder will get two shares of Sterlite Industries for every three shares of Sesa Goa.

Reports suggest that Vedanta has been considering various options to simplify the unwieldy structure under which three of the six Indian companies are directly owned by the global parent. The rest are either co-owned with Indian subsidiaries or the government.

Vedanta Resources has posted its comments on the company website. A statement of Vedanta’s reads: “Vedanta Resources plc (Vedanta) notes media speculation regarding a potential group restructuring. Vedanta’s stated strategy is to simplify and consolidate its corporate structure. Management reviews options to deliver this strategy on an ongoing basis and will update the market as appropriate.”

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