Vedanta-Cairn merger makes investors glum, company says it's a win-win deal.

Large investors and some leading brokerages slammed the proposed merger of oil producer Cairn India into the metals and mining conglomerate Vedanta as a big negative for minority shareholders. One day after Vedanta announced the move, institutional investors panned the deal but a negative vote against the merger is unlikely because of close business links between many funds and Vedanta group companies.

'I hold Cairn India in my portfolio schemes and I see this merger with Vedanta as detrimental for minority shareholders,' said a fund manager of a large mutual fund house, who did not want to be identified.

Vedanta announced recently that Cairn India was merging with itself to create a natural resources conglomerate that would produce everything from aluminium and copper to crude oil. Shareholders would receive one Vedanta share for every Cairn India share held and one preference share with a coupon of 7.5 per cent. Vedanta, which is struggling to reduce its debt of Rs 77,000 crore, will get access to Cairn's cash pile of Rs 17,000 crore once the deal is approved.

Cairn investors fear that the firm's cash would be used to pay off Vedanta's debt and that it would inherit the problems of a large mining conglomerate, which is fighting environmental activists over an aluminium project in Odisha. 'As a mutual fund manager, if asked I would vote against the Vedanta-Cairn merger. The minority shareholders of Cairn India are at a loss, given the huge debt of Vedanta as well as risk of global metal underperformance,' said a fund manager, who wanted to anonymous.

LIC owns 9 per cent and Cairn Energy Plc owns 9.8 per cent in Cairn India. Proxy advisory firm InGovern termed the transaction an attempt to 'socialise the debt of Vedanta Ltd' while brokerage firm Barclays said that the risk-reward is more favourable to an independent Cairn than a merged Vedanta.

'Cairn's minority shareholders get a raw deal after its merger with Vedanta. The share swap ratio of 1:1 is not favourable as the company is giving up its large cash on books for huge debt,' said a fund manager of a mutual fund house on condition of anonymity.

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