1. LIC till 31st March had little over 1.5% stake in Vedanta Ltd while over 9% stake in Cairn India. If there is more value in Vedanta Ltd than Cairn India then why LIC stake in Vedanta is just over one and half percent. Also the logic of tax overhang on Cairn India for low valuation is meaningless as if the court ruling is in favor of CBDT, it is Vedanta which will have to shell out the tax and penalty amount which will be huge setback considering it's already stretched balance sheet.
2. LIC had over 11% stake in Hindalco till 31st March 2015 and has recently increased it's stake in the company by 2% to 13%. As we all know Hindalco and Vedanta are somewhat similar company with majority of revenue coming from Aluminium and copper refining. Its must be observed that LIC is preferring Hindalco vs Vedanta for obvious reason. If the merger go through LIC would eventually have very high exposure to metals sector as it's stake in Vedanta Ltd will be go over 6%.
3. LIC currently receives around 150 crores of dividend out of it's investment in cairn India while post merger it's dividend income from swapped shares will reduce to around 70 crores per annum with relatively increased risk as Vedanta has very high amount of debt and Cairn India is a cash rich company.
4. The current proposed merger will lead to the de-listing of the only private pure play Oil & Gas company and a lost opportunity for LIC to own a large scale India based oil & gas giant with significant stake.
5. The proposed merger is not only pathetic for retail shareholders, its is equally bad for govt of India, as the merger will lead to significant savings on Dividend Distribution tax which govt would have collected from constantly high dividend outflow from Cairn India. Also once Cairn India is merged it will loose focus on Oil & Gas exploration and development which is a serious set back for India's energy security. Regarding ongoing tax dispute govt. of India has the security of cash war chest of roughly 25000 crores lying at Cairn India balance sheet which can easily be used in case of ruling in favor of govt. Hence there might be invisible pressure on LIC from Govt. of India side to disapprove the current merger proposal.