International Diversification through Acquisition: Fundamentals and Estimations of Vedanta buyout of Cairn India

Reddy, Kotapati Srinivasa (2010): International Diversification through Acquisition: Fundamentals and Estimations of Vedanta buyout of Cairn India.

Abstract

Corporate valuations, financial strength in cash flows and opening up of debt facility favour more overseas acquisitions. Historically, corporate restructuring is a strategic, mechanized and chemical formula for achieving external growth to become a globalized diverse company. The phenomenon of ‘diversification’ is not new, where it was born in the timeline of the Kings. Markets are becoming highly connective, accessible, communicative and are reaching maturity at a very high phase. Acquisition is a choice to enhance the emerging and diversified markets. This case-based research study presents a case discussion, case analysis and opinion based inference on Vedanta – Cairn India cross-border acquisition deal in Indian oil and exploration industry. We also suggest a new forecasting model to estimate future free cash flows and firm valuation in the upcoming research field of corporate finance. The study exclusively shows reaction of stocks against acquisition announcement and compares with market performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mergers; acquisitions; equity stake; oil & exploration; Vedanta resources Plc; Cairn energy Plc; Cairn India; deal structure
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M10 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M16 - International Business Administration

References

Amy Kazmin 2010. Vedanta to take cairn india stake. Available at: www.ft.com, Aug 16.

Brett, Michael, (2003): ‘How to Figure Out Company Accounts’, Texere Publishing Ltd, London.

Damodaran, Aswath (1996): ‘Investment valuation – Tools and Techniques for determining the value of any asset’, John Wiley & sons Inc.

Damodaran, Aswath (2004): ‘ The dark side of valuation – valuing old tech, new tech and new economy companies, Prentice-Hall Inc.

Devidutta Tripathy and Nidhi Verma 2010. Vedanta-cairn deal could be tripped up by regulatory issues. Available at: www.reuters.com, Aug 17.

Harold Jr. Bierman, (1981): ‘Financial Management and Inflation’, The Free Press – Macmillan Publishing Co., Inc, NewYork.

Kamal Ghosh Ray (2010), Mergers and Acquisitions – Strategy, Valuation and Integration, PHI Learning Private Ltd. New Delhi.

Kari Lundgren and Firat Kayakiran 2010. Vedanta to buy stake in cairn India for as much as $9.6 billion. Available at: www.businessweek.com, Aug 16.

Kefford Bryan, (2003): ‘Handbook of Financial Modeling for business decisions, Crest Publishing house, New Delhi.

Krishnamurthy, Chandrasekhar and Viswanath, S. R., (2009): ‘Advanced Corporate Finance’, PHI Learning Private Ltd, New Delhi.

Moyer, Charles. R, McGuigan R. James and Kretlow, J. William (2003): ‘Contemporary Financial Management, Thomson-South-western Learning.

Nangia, V.K., Agarawal, R., Sharma, V., & Reddy, K.S. (2011). Conglomerate diversification through cross-continent acquisition: Vedanta weds Cairn India. Emerald Emerging Markets Case Studies, 1(1), 1–15.

Patricia Kuo 2010. Vedanta to fund its purchase of cairn energy stake with $6.5 billion debt. Available at: www.bloomberg.com, Aug 16.

Profile of Cairn Energy, Plc., available at: www.cairnenergy.com, last accessed on Sept 15, 2010.

Profile of Cairn India Limited., available at: www.cairnindia.com, last accessed on Sept 20, 2010.

Profile of Vedanta Resources, Plc., available at: www.vedantaresources.com, last accessed on Sept 30, 2010.

Prowess Database. Centre for Monitoring of Indian Economy private Limited, Mumbai.

Reddy, K.S. (2014). Extant reviews on entry-mode/internationalization, mergers & acquisitions, and diversification: Understanding theories and establishing interdisciplinary research. Pacific Science Review, 16(4), 250-274.

Reddy, K.S. (2015a). Beating the Odds! Build theory from emerging markets phenomenon and the emergence of case study research—A “Test-Tube” typology. Cogent Business & Management, 2(1), 1037225.

Reddy, K.S. (2015b). Macroeconomic change, and cross-border mergers and acquisitions: The Indian experience, 1991-2010. https://mpra.ub.uni-muenchen.de/63562/1/MPRA_paper_63562.pdf

Reddy, K.S., & Agrawal, R. (2012). Designing case studies from secondary studies – a conceptual framework. International Management Review, 8(2), 63–70.

Reddy, K.S., Nangia, V. K., & Agrawal, R. (2013a). Corporate mergers and financial performance: a new assessment of Indian cases. Nankai Business Review International, 4(2), 107-129.

Reddy, K.S., Agrawal, R., & Nangia, V.K. (2013b). Reengineering, crafting and comparing business valuation models-the advisory exemplar. International Journal of Commerce and Management, 23(3), 216-241.

Reddy, K.S., Nangia, V.K., & Agrawal, R. (2014). The 2007–2008 Global Financial Crisis, and Cross-border Mergers and Acquisitions A 26-nation Exploratory Study. Global Journal of Emerging Market Economies, 6(3), 257-281.

Shantanu, Guha ray 2010. Vedanta acquires cairn india gives reliance and others sleepless nights. Tehelka magazine,7, 34, Aug 28.

Thomas, L. West and Jones, D. Jeffrey., (1999): ‘Handbook of Business Valuation’, Second Edition, John Wiley & sons Inc.

Thompson, Jr. A., Arthur and Strickland III A.J., (1984): ‘Strategic Management – Concepts and Cases’, Third edition, Business Publications Inc, Texas.

Venkatasubramanian, K 2010. Non-compete fee. Available at: www.thehindubusinessline.in

Weston, J.F., Chung, K.S., & Hoag, S.E. (1998). Mergers, Restructuring and Corporate Control. Prentice Hall, New Delhi, India.