Mumbai, Aug. 16: Markets were not enthused by the multi-billion dollar deal for Cairn India — the stock plummetted 6.36 per cent to close at Rs 332.85. The stock price of Sesa Goa, which will be making an open offer for Cairn India, also dropped 8.9 per cent to Rs 322.55 — markets feel the price being paid for Cairn is too high. Most brokerage houses are advising Cairn India shareholders to subscribe to the open offer.
Daiwa, a brokerage house, has put an underperform rating on Cairn India’s stock with a price target of Rs 287. Vedanta is paying a 24 per cent premium to the fair value, says the brokerage and is advising investo-rs to tender their shares for the offer. The view is mirrored by broker BRICS, which also recommends subscribing to the offer.
An interesting point raised by BRICS is the no-compete fee being paid to the promoters. Cairn India is in commodity business where customers cannot be stolen so there is no rationale for this premium, the brokerage says. This transaction is an example of why Sebi is considering prohibition of payment of non-compete fees to promoters.