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Cairn India drops after talks of merger with Vedanta

Cairn-IndiaShares of Vedanta rose as much as 1.6 per cent to Rs. 180 after reports said that the metal and mining company is considering a merger of its subsidiary Cairn India with itself.

Shares of oil exploration and production company Cairn India however fell 5.8 per cent at its day’s low of Rs. 170.

The move may give parent Vedanta access to Cairn’s cash and help reduce debt. Vedanta Group holds 59.88 per cent stake in Cairn India while British oil explorer Cairn Energy has a 9.8 per cent stake in Cairn India.

Cairn Energy reported cash and cash equivalents of Rs.16,867 crore as on March 31 and its cash flow from operations was at Rs. 8,765 crore during FY15. On the other hand, the standalone net debt of Vedanta Ltd was at Rs. 36,796 crore as on March 31. The stock hit a high of Rs 176 so far during the day. The stock hit a low of Rs 170.80, also a 52-week low for the stock. The stock hit a 52-week high of Rs 385 on 11 June 2014.

The stock had underperformed the market over the past one month till 8 June 2015, declining 12.35% compared with 2.15% decline in the Sensex. The scrip had also underperformed the market in past one quarter, dropping 24.51% as against Sensex’s 9.94% fall.

The large-cap oil & gas exploration and production company has an equity capital of Rs 1874.85 crore. Face value per share is Rs 10.

The merger of Vedanta with Cairn India will give the parent access to Cairn’s cash and help reduce debt, as per reports. The two are shortly expected to inform shareholders about the proposed transaction, report said.

Based on weighted average stock prices of the two companies for the past six months, Cairn India shareholders should receive about 1.1 share of Vedanta for each share of Cairn – in other words 11 shares of Vedanta for every 10 Cairn shares, report added.

Meanwhile, British oil explorer Cairn Energy, which has 9.8% stake in Cairn India, is fighting a bitter tax dispute with the Indian government. The government has asked Cairn Energy to pay $1.6 billion on an alleged Rs 24500 crore capital gains it booked in 2006 by transferring its assets in India to a new company, Cairn India, and getting it listed.

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