London-based Vedanta Group (LON:VED) announced Saturday a merger of two of its subsidiaries, Sesa Goa and Sterlite Industries, into a new corporate entity to be named Sesa Sterlite.
Sesa Goa is India's largest private iron ore producer and exporter, while Sterlite Industries is the country's largest non-ferrous metals and mining company.
The consolidation is expected to create the world’s seventh largest global diversified natural resources major by operating profit.
In a news release, Vedanta said the move is aimed at consolidating its business structure, improving economies of scale, increasing cash flows and saving up to $200 million per year in costs.
“This consolidation will lead to a simpler and more efficient structure and will facilitate more flexible allocation of capital. Our shareholders will benefit from unparalleled growth across metals, mining and oil & gas, besides the increased synergy,” said Vedenta Group CEO M.S. Mehta.
Under the transaction, three Sesa Goa shares will be issued for every five Sterlite shares. Unlisted companies Vedanta Aluminum Ltd. and The Madras Aluminum Company Ltd. will be rolled into Sesa Sterlite.
The transaction also transfers 38.8% of Vedanta’s direct holding in Cairn India Limited to Sesa Goa, with associated debt of $5.9 billion, at cost. After the transfer, Sesa Sterlite
will have a 58.9% shareholding in Cairn India. Pending regulatory and shareholder approvals, the new company will be listed in India with American Depository Shares (ADS) listed on the New York Stock Exchange.
According to the news release, Sesa Sterlite will have exposure to zinc-lead-silver, iron ore, oil & gas, copper, aluminium and commercial power with assets in India, Australia, Liberia, South Africa, Namibia, Ireland and Sri Lanka.
The new company expects to double a previously announced capex program in the next three years.