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.
The relentless fall in Cairn India share prices since past couple of months in-spite of handsome recovery in crude oil smells fishy and hints at share price rigging to benefit the Anil Agarwal group so that the residual 40% public stake in Cairn India can be swapped with least number of Vedanta Ltd shares. Cairn India being the only pure crude oil private player listed in India, existing public shareholders can benefit in no way with this reverse merger and is intended to benefit only the Vedanta group.
In an article titles "Cairn India Stock Analysis", it was really surprising how Cairn India is trading at ridiculous valuations and available at only 4 years of cash flow. Crude oil outlook will also improve in couple of years and hence long term shareholders should defeat this merger. As per SEBI act on M&A of listed companies, a minimum of 2/3rd of public shareholders approval is required. LIC and Cairn Energy PLC holds around 20% while rest is being held by MFs and public. If you are against the merger please vote below and share your comments.