The Post reports Zambia Copper Investments (ZCI) has requested Vedanta Resources Plc to pay interest on the Option Exercise Price (OEP) pending completion of the transaction. Since it is technical I have pasted the entire story below.
And Zambia Competition Commission (ZCC) acting executive director Thula Kaira has said Vedanta Resource Plc has begun the process of fulfilling requirements of the Competition Commission before it can take over 28.4 per cent shares of ZCI in KCM.
In a statement released to shareholders, ZCI chairman Thomas Kamwendo stated that Vedanta Resources would be required to pay interest on the Call Option Price of US $213.85 million (approximately K850 billion) for the 28.4 per cent it holds in KCM.
Kamwendo further stated that the company has no direct influence on negotiations between Konkola Copper Mines (KCM) and the Zambia Competition Commission (ZCC), or their ultimate outcome although it had been kept informed of the discussions. He stated that indications received from KCM and Vedanta were that the prospects of the ZCC not granting final approval for the transaction were remote.
“While the ZCC initially granted Vedanta interim authorization for the transaction, it has subsequently withdrawn this, citing a failure by Vedanta to comply with an understanding on notification that had been reached with the ZCC,” stated Kamwendo in a notice issued to sharesholders. “
A further issue being dealt with in parallel to the above is the conclusion of a suitable termination agreement relating to the New Shareholders Agreement concluded between the shareholders of KCM in November 2004. Be assured that every effort is being made to conclude the transaction as soon as is practical and on the best possible terms for the Company.”
And Kaira, in an interview, said Vedanta’s bid to take over 28.4 per cent shares of ZCI in KCM would only be considered once the notification process was concluded.
Vedanta Resources, which plans to acquire the additional shares in KCM through a Call-Option Deed with ZCI, was asked to seek the commission’s authorization as mandated by the laws of Zambia.
“Vedanta Resources have not completed the notification process. They have agreed to notify the commission over their decision to take over the 28.4 per cent of ZCI in KCM,” Kaira said. “Since the valuation of the ZCI shares have already been done, all we have to wait for is notification from Vedanta Resources. They have begun the process of fulfilling requirements of ZCC, and once they are done, we will start the transactions.”
There has been opposition from some ZCI shareholders and other concerned members of society regarding Vedanta Resources Plc’s bid to acquire the 28.4 per cent shares owned by ZCI in KCM.
The ZCI shareholders rejected the plans as they felt cheated by the “undervalued” offer price of US $213.85 million (approximately K850 billion).
The move faced further trouble from the competition commission which said Vedanta needed authorization before increasing its stake in KCM through its Call-Option Deed with ZCI.
According to section 8 subsection (1) of Cap 417 of the Laws of Zambia: “Any persons who in the absence of authority from the commission whether as a principal or agent and whether by himself or his agent, participates in a merger between two or more independent enterprises engaged in manufacturing or distributing substantially similar goods or providing substantially similar services; a takeover or one or more such enterprises by another enterprise, or by a person who controls another such enterprise shall be guilty of an offence and shall be liable, upon conviction, to a fine not exceeding K10 million or imprisonment not exceeding five years or to both.”
Subsection (2) of the same section further states that: “No merger or takeover made in contravention of subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.”
KCM is owned 51 per cent by Indian Vedanta; 28.4 per cent by ZCI, a legal entity from Bermuda; and 20.6 per cent ZCCM-IH (88 per cent of which is owned by the Zambian government).
Vedanta currently holds a Call-Option Deed on the 28.4 per cent of KCM still owned by ZCI whereby they agreed that the latter, upon exit, would offer its 28.4 per cent shares in KCM to the former.
On January 17, 2008, independent investment bank N M Rothschild & Sons Limited, pursuant to their appointment by Vedanta and ZCI to establish the price at which Vedanta shall have the option to acquire ZCI's 28.42 per cent interest in KCM submitted their report.
Rothschild, who assessed the value as it stood in August 2005, came up with the figure of US$213.85 million for the 28.4 per cent, thus evaluating 100 per cent of KCM at US$750 million.
Vedanta has the right to accept or refuse to go on with the call, but ZCI cannot refuse to sell. As a result, Vedanta now has a reasonable period within which to accept or reject the valuation price as determined by the bank.
According to a submission by Jean-Luc Chaillan, Chairman of ZCDEFENSE, a group of minority shareholders in ZCI and ZCCM, the trouble is that ZCI shareholders feel the shares have been undervalued and Vedanta will buy the shares very cheaply as it did to the 51 per cent shares in KCM, as latest independent evaluations for KCM shares are far more than that of Rothschild.
Vedanta bought 51 per cent of KCM stock in November 2004 for a mere US $48 million. Back then, this sale came under fire from a cross section of Zambian industrialists, unions, political parties and the media, and was described as an outrageous pillaging of Zambian resources.
All the evaluations conducted by various financial audit agencies are way above the Rothschild figure.
For instance, Morgan Stanley & Company International, in a survey about Vedanta dated December 15, 2005, evaluated the 51 per cent of KCM at US$1.321 billion, which makes KCM worth US$2.590 billion, far above the US$750 million proposed by Rothschild.
Other subsequent assessments are even higher. When the Rothschild evaluation came out, financial analysts Lehman Brothers, immediately concluded that it was a bargain on the part of KCM because KCM was worth at least twice the suggested amount.
1 comment:
The Post has put together a fine evaluation of the current situation and I would thank them for their precision.
One point to clarify:
ZCI is a company registered in Bermuda, but please remember that 52% of the shareholders are Zambian.
The Copperbelt Foundation, a Zambian Social action entity, holds 44% of ZCI equity and a further 8% is held by KCM mine employees.
The sale of ZCI shares to Vedanta at what is considered to be an undervalued level will significantly reduce the revenues available for Social support and mine employee benefit.
The remaining 48% of general international shareholders will be equally penalised, as "everyone is in the same boat".
For this reason minority shareholders are strongly opposed to the liquidation of ZCI equity in KCM.
They would prefer, in line with the changes in Zambian mining legislation planned to be implemented next month, that Vedanta maintain their controlling interest in KCM, but ZCI and ZCCM continue to hold significant equity and assure a balanced KCM ownership structure.
A 79% KCM ownership for Vedanta can only be considered as a monopoly and, as I understand, will be in conflict with the forthcoming revised "Mines & Minerals Development Act NAB 5 2008".
It will also eliminate the Zambian social function initially integrated into the ZCI participation.
For these and many other reasons, I have faith that the Zambian Competition Commission will review in an unbiased manner the competitive, legislative and mining industry structural aspects of the proposed Vedanta acquisition and rule against its implementation.
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