Vedanta has approved the sale of it’s international Zinc assets in South Africa and Namibia to it’s subsidiary Hindustan Zinc (HZL).
- The transaction is valued at $2.98 bn (approx Rs 25,000 cr)
- It’s an all-cash deal, which would be completed in a phased manner over 18 months
- Valuations are estimated at 14.9x FY 24 EV/EBITDA. This is very expensive and would wipe out HZL’s cash. For comparison, HZL is currently trading at 6.7x FY 24 EV/EBITDA.
- Hindustan Zinc will also start to pay 2% royalty on sales to Vedanta Ltd for Brand name usage, as per the analysts
Rationale for HZL
The acquisition will give it access to a resource base of 35 mt with over 30 years of mine life.
It’s capacity will ramp up from 1.2 mt to 2mt+, while giving access to countries in Africa, Europe, and North America.
Rationale for Vedanta
Very simply, access to significant cash that it desperately needed for varied purpose.
HZL is 65% owned by Vedanta and it seems that the transaction has been structured to suit Vedanta in the short term. However, given the steep valuations and the fact that HZL is still 29.54% owned by the Government, it would be interesting to see if the transaction passes through easily.
And yes, as per news sources, govt is not comfortable with this transaction.
As per the news, government nominees on the HZL board had strongly opposed the transaction; flagging several concerns about this related-party transaction, including its rationale and valuations.
There are three government directors in the nine-member HZL board and all of them had opposed. However, they were overridden (being in minority) and the company announced that board has approved the transaction.
The transaction to go through still needs shareholders’ approvals where again it’s expected that government being a shareholder will oppose it.
Separately, there would be additional approvals that would be required from the government as the regulator.
Considering everything, the transaction can not go through without the Government’s consent.
https://www.thehindu.com/business/govt-opposes-vedanta-move-to-offload-its-global-zinc-assets-to-hindustan-zinc/article66478940.ece
Govt in it’s letter to HZL has made it clear that it’s not comfortable with the transaction and is going to vote it down in the EGM (meeting to seek shareholders’ approval).
Any M&A requires a special resolution to be passed with 75% majority. As the government holds more than 29.54%, the transaction won’t be possible if it opposes.
In a worse case scenario, govt is also open to go to the court.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/705CD9B9-44C1-403F-AEAA-F525481B0709-083834.pdf
It’s now clearly speculated that given govt’s strong opposition to the deal, HZL may not go ahead twitch the deal.
As per the rules, if the HZL board’s January 19 proposal isn’t endorsed by shareholders within three months, it will automatically lapse.
https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/hindustan-zinc-may-not-act-on-proposal-to-buy-vedantas-zinc-biz/articleshow/99252808.cms