Big Bounty Awaiting Essar Oil’s Erstwhile Public Shareholders?
Essar Oil’s erstwhile public shareholders may earn up to 35% more than the delisting price paid in 2015.
The closure of the sale of Essar Oil Ltd. brings good news for its erstwhile public shareholders. They may stand to earn up to 35 percent more than the delisting price they were paid in 2015.
Initial calculations done by BloombergQuint suggest that the acquisition of Essar Oil by Russian oil major Rosneft and the Trafigura-UCP consortium has been done at Rs 355 per share versus the delisting price of Rs 262.8 per share. Essar is obligated by a decision of market regulator SEBI to pay the difference to shareholders who tendered shares in the delisting. This because the delisting was done even as acquisition negotiations had begun.
The Acquisition Price
While announcing the finalisation of the acquisition on Monday, both Essar and the buyers said the deal to acquire 98.26 percent of the Indian refining major was done at an enterprise value of $12.9 billion, of which $5 billion was debt. On that basis, the equity value of the deal amounts to $7.9 billion.
After the delisting, Essar Oil has a total 145.06 crore outstanding shares, all owned by the promoter Ruia family. Simple math suggests the acquirers paid approximately Rs 355 per share to Essar Oil’s promoters – a 35 percent premium to the delisting price.
As per a SEBI order in November 2015, in the case of a sale being finalised, the promoters of Essar Oil have to pay the differential between the delisting price and deal price to minority shareholders participating in the delisting.
Provided that, notwithstanding any delisting of equity shares of the Company, the promoter/s of the Company shall be responsible to pay the difference between the transaction price with Rosneft and the final delisting price to those shareholders whose shares were accepted in terms of the Delisting Regulations, if the former is higher.SEBI Order (2015)
Twist In The Tale?
In its media interactions on Monday the company said it was yet working on the per share acquisition price. When BloombergQuint sought to confirm its calculation with Essar Oil, a company spokeperson said, “There are factual inaccuracies in the calculation. Essar advisors are reconciling the closing numbers and we will announce the additional payout amount to shareholders shortly.”
The one twist in the tale is Essar Oil’s acquisition of the Vadinar Oil Terminal Ltd. and Vadinar Power Company Ltd. after the delisting. Both these assets are adjacent to the refinery and owned by the promoter family. The deal with Rosneft and others included the sale of these additional assets.
Essar Oil is required to acquire Vadinar Oil Terminal Ltd. which manages storage and cargo handling facilities for the refinery, and Vadinar Power Company Ltd. which owns and operates coal generation power plant for captive use by the Company.Essar Oil Annual Report 2015-16
This implies that the acquisition price of $12.9 billion includes these two assets. But since Essar Oil used its balance sheet to acquire these two assets, its exiting minority shareholders should remain unaffected by the acquisitions or their value.
Essar now has 10 days, as per the SEBI order, to issue a public notice stating the details of the transaction and the consideration paid by Rosneft. Thereafter, within two months the Ruias will have to pay the difference in value to those shareholders whose shares have been tendered and accepted in the delisting.