In what could be a possible negative for Cairn and Hindustan Zinc, reports say that mining baron Anil Agarwal is mulling merging the two companies into his flagship Vedanta Group firm Sesa Sterlite to create a global natural resources giant to rival Rio Tinto or BHP Billiton.
In an interview to PTI, Agarwal said consultants have been appointed to explore if it would make sense to merge the two firms into Sesa Sterlite. "We have asked a consultant to look at it," he said. The move could help reduce Sesa’s net debt of nearly Rs 32,500 crore.
However, in an interview to CNBC-TV18, Tom Albanese, CEO, Sesa Sterlite, said the news is “strictly speculative” and is part of progression that the company has discussed earlier about simplifying corporate structure.
“We had the Sesa Sterlite merger a year-and-a-half ago. We have said that we are going to look into simplifying the company, so obviously we would be exploring those opportunities. Anything that would happen or could happen has to take quite a range of complicated pieces into account,” Albanese said.
Cairn has been under pressure today, with the stock being down 3 percent. The company has cash of Rs 30,000 crore, as much as Sesa’s debt. Even Hidustan Zinc is sitting on cash in excess of Rs 20,000 crore.
The management must communicate well to each other first, says Anil Singhvi of IIAS, who feels the merger is a bad idea as the promoters will get confronted on every front be it Cairn, which is going through tough times because of falling oil prices, Sesa, which has been facing troubles on mining front or Hindustan Zinc, wherein the government is yet decide on stake sale.
Singhvi feels all this will confuse shareholders and recommends not to approve such mergers. He doesn’t believe that it is necessary to merge companies to compete with global players.
Amit Tandon of IIAS, said that it would be extremely premature to talk about transaction of this nature till the government continues to own 30 percent of Hindustan Zinc.
He feels that a lot of investors may ask whether the merger should go ahead given the fact that one company has excess debt, while the other two are sitting on cash.
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