Vedanta Buys 51 Percent Of India's Sesa Goa

Vedanta buys 51 percent of India's Sesa Goa

By Mark Potter and Emi Emoto, The Scotsman

24th April 2007

LONDON/TOKYO (Reuters) - Miner Vedanta has bought 51 percent of Indian iron ore exporter Sesa Goa and said on Tuesday it planned to buy a further 20 percent, bringing the total cost of the deal to $1.37 billion (686 million pounds).

Vedanta said it had bought Mitsui & Co's <8031.T> 51 percent stake in Sesa Goa for $981 million, or 2,036 rupees a share, and that it was launching an open offer to buy a further 20 percent of the firm at the same price.

The deal marks India-focused Vedanta's entry into the lucrative iron ore market, adding to its existing strengths in aluminium, copper and zinc. Iron ore has been in strong demand in recent years as rapid growth in China and India has fuelled a surge in global steel production.

"This appears to be a typical 'Vedanta-style' acquisition with expected quick de-bottlenecking and ability to leverage its capital, operating and regional expertise as well as providing diversification," JP Morgan analysts said in a research note.

At 10:15 a.m., Vedanta shares were up 1.8 percent at 1,435 pence, the second-biggest rise on the FTSE-100 index and valuing the business at about 4.1 billion pounds. Shares in Sesa Goa, India's biggest private sector iron ore exporter, were down 2 percent at 1,707 rupees.

Sources familiar with the matter earlier told Reuters that Vedanta had agreed to buy Mitsui's stake in Sesa Goa. Other sources said it beat off rival bids from the world's biggest steelmaker, Arcelor Mittal , and India's Aditya Birla group. Mitsui is shifting its business emphasis to investment, moving away from its traditional role as a middleman earning modest agent commissions.

"It's a symbolic deal," said Takashi Murakami, analyst at Credit Suisse. "It would be the first time that Mitsui has sold a big, highly profitable business to gain a profit. It's a nice step for an investment company."

Mistui said in a statement that the sale would generate 50 billion yen (211 million pounds) in profit and that it would use the proceeds to invest in other natural resources.

PARTNERS FOR STEEL

Vedanta deputy chairman Navin Agarwal told reporters that under India's takeover rules his firm was required to launch an open offer for at least a further 20 percent of Sesa Goa shares.

He declined to say whether Vedanta might eventually seek to raise its stake beyond 71 percent. But his brother, Chairman Anil Agawal, who owns about 54 percent of Vedanta, later said there were no plans to delist Sesa Goa. "Sesa is a natural fit for Vedanta; it is an efficient, low cost miner with growth opportunities in one of the world's fastest growing economies," Anil Agarwal said in a statement.

"This transaction is immediately earnings and cash flow accretive and we believe it will create significant long term value for all our stakeholders."

Sesa Goa currently sells around 10 million tonnes of iron ore and made a pretax profit of $193.8 million in the year to March 2006.

Navid Agarwal said Vedanta aimed to boost production to around 15 million tonnes in one to two years time and that the firm might also look to expand into steelmaking, with a partner.

"Our current sense is that this is something which we do not want to do on our own and possibly we would look at a joint venture partner," he told a conference call. "There's no decision at this point of time. It's just something we will look at as we progress this company."

Vedanta said it would pay for the deal through a mix of newly committed bank debt facilities of $1.1 billion and existing cash resources.

It expects to complete the open offer by July 2007.

Nomura advised Vedanta on the deal.

(additional reporting by Yuko Inoue in Tokyo and Davidutta Tripathy in Mumbai)