Copy of MAC Assignment 2 - Group 3-1

9/20/2011 2/28/2012

Sterlite Industries 3361.00 133.85INR 120.95INR

Sesa Goa 869.00 223.50INR 208.20INR

No Currency

Conversion 1.0000 1.0000

Cost of Buying Shares of Sterlite 120.95INR Share Conversion for Sterlite to Sesa Goa

Success 130.42INR

Failure 130.17INR

x -15.57920674

Combined Equity Valuation 587,438.75INR

S Min 8,417.08INR

SESA GOA- STERLITE DEAL

Outstanding Shares (in

Millions)

Closing Prices

The record date for determining the list of the shareholders of Sterlite, MALCO

and Ekaterina to whom the equity shares of the Sesa Goa will be allotted as per

terms of the scheme has been fixed as 28 August, 2013.Every equity

shareholder of Sterlite Industries holding 5 equity shares of Re 1 each shall get 3

shares of face value Re. 1 each of the Sesa Goa.

120.95 =130

Combined equity valuation as on February 28, 2012

=Rs.587.4 billion

𝑇ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒, 587.4

Equity Value 9/20/2011 2/28/2012

Sterlite Industries 449,869.85INR 406,512.95INR

Sesa Goa 194,221.50INR 180,925.80INR

Total 644,091.35INR 587,438.75INR

0.6


130.42𝑥:130.17 1;𝑥

1:9% 0.5 ⟹ 𝑥 = −1557.9% ~0%

Combined equity valuation as on February 28, 2012

=Rs.587.4 billion

On Deal Success: = 0% × 644 + 𝑆𝑚𝑖𝑛

On Deal Failure: = 100% × 644

587.4 =0% × 644 + 𝑆𝑚𝑖𝑛 + (100% × 644)

1 + 9% 0.5⟹ 𝑆𝑚𝑖𝑛 = 1976.18 𝑏𝑖𝑙𝑙𝑖𝑜𝑛

2/20/2012 8/28/2013

Sterlite Industries 3361.00 133.00INR 90.20INR

Sesa Goa 869.00 245.20INR 169.55INR

No Currency

Conversion 1.0000 1.0000


Sterlite Industries (India) Limited is India’s largest diversified metals and mining company.The Company a part of the Vedanta Group produces aluminium, copper,

zinc, lead, silver, and commercial power. It has a portfolio of world class assets in India, Australia, Namibia, South Africa and Ireland. Sterlite is listed on the

Bombay Stock Exchange and National Stock Exchange in India and the New York Stock Exchange in the United States.

Sesa Goa Limited is India’s largest producer and exporter of iron ore in the private sector and a subsidiary of Vedanta Resources Plc., the London listed FTSE 100

diversified metals and mining major.

NEWS 17 Aug 2013

Sesa Goa and Sterlite Industries, in a joint statement, both the companies said that merger of Sterlite and Malco into Sesa Goa has become effective pursuant to

the scheme of amalgamation and arrangement amongst Sterlite, Malco, Sterlite Energy, Vedanta Aluminium and Sesa Goa and their shareholders and creditors.

The merger, first announced on February 25, 2012, is aimed at creating a mega Indian natural resources giant, Sesa Sterlite, on the likes of BHP Billiton and Rio

Tinto. It would also result in a Rs 1,000 crore annual saving for Vedanta through a reduction in debt-servicing cost as most of its debt gets transferred to the new

entity.

On the record date (August 28), Sterlite shareholders will get three shares of Sesa Goa for every five shares held, according to the swap ratio. Malco shareholders

will get 7 shares of Sesa Goa for their every 10 share of Rs 2 each.

Cairn India, Hindustan Zinc, Balco, Vedanta Aluminium, Madras Aluminium, Western Clusters in Liberia, Talwandi Sabo Power and Australian Copper Mines have

now become subsidiaries of Sesa Sterlite after the restructuring.

The new company has total assets worth $36 billion (Rs 1,95,000 crore), net income of $1.9 billion (Rs 10,000 crore) and cash and liquid investments of $7.7 billion

(Rs 42,000 crore) as on March, 2013.

It will also inherit almost 87% of Vedanta's debt, which was $16.593 billion in March 2013, as loans taken to fund the Cairn India acquisition get transferred to Sesa

Sterlite. Accordingly, Sesa Sterlite has a debt of $14.399 billion.

Outstanding Shares

(in Millions)

Closing Prices

The record date for determining the list of the shareholders of Sterlite,

MALCO and Ekaterina to whom the equity shares of the Sesa Goa will be

allotted as per terms of the scheme has been fixed as 28 August, 2013.Every

equity shareholder of Sterlite Industries holding 5 equity shares of Re 1 each

shall get 3 shares of face value Re. 1 each of the Sesa Goa.

Implied Probability of Success for the Deal

Cost of buying shares: Rs. 90.2

No reasonable operational synergies are visible

Suppose that investor reinvests the proceeds from short position of Sterlite at a risk-free rate and he maintains short

position for a period of 7 months, then implied probability of success is:

TRUE SYNERGY FROM SESA GOA & STERLITE INDUSTRIES DEAL

Combined equity valuation as on August 28, 2013

=Rs.450.5 billion

𝑇ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒, 450.5 =15.77% × 660 + 𝑆𝑚𝑖𝑛

1 + 5.5%

90.2 =104.94𝑥 + 90.82 1 − 𝑥

1 + 5.5% 0.58⟹

Equity Value 2/20/2012 8/28/2013

Sterlite Industries 447,013.00INR 303,162.20INR

Sesa Goa 213,078.80INR 147,338.95INR

Total 660,091.80INR 450,501.15INR

2/20/2012 8/28/2013

-127,394.80INR -82,153.78INR


Sterlite Industries (India) Limited is India’s largest diversified metals and mining company.The Company a part of the Vedanta Group produces aluminium, copper,

zinc, lead, silver, and commercial power. It has a portfolio of world class assets in India, Australia, Namibia, South Africa and Ireland. Sterlite is listed on the

Bombay Stock Exchange and National Stock Exchange in India and the New York Stock Exchange in the United States.

Sesa Goa Limited is India’s largest producer and exporter of iron ore in the private sector and a subsidiary of Vedanta Resources Plc., the London listed FTSE 100

diversified metals and mining major.

NEWS 17 Aug 2013

Sesa Goa and Sterlite Industries, in a joint statement, both the companies said that merger of Sterlite and Malco into Sesa Goa has become effective pursuant to

the scheme of amalgamation and arrangement amongst Sterlite, Malco, Sterlite Energy, Vedanta Aluminium and Sesa Goa and their shareholders and creditors.

The merger, first announced on February 25, 2012, is aimed at creating a mega Indian natural resources giant, Sesa Sterlite, on the likes of BHP Billiton and Rio

Tinto. It would also result in a Rs 1,000 crore annual saving for Vedanta through a reduction in debt-servicing cost as most of its debt gets transferred to the new

entity.

On the record date (August 28), Sterlite shareholders will get three shares of Sesa Goa for every five shares held, according to the swap ratio. Malco shareholders

will get 7 shares of Sesa Goa for their every 10 share of Rs 2 each.

Cairn India, Hindustan Zinc, Balco, Vedanta Aluminium, Madras Aluminium, Western Clusters in Liberia, Talwandi Sabo Power and Australian Copper Mines have

now become subsidiaries of Sesa Sterlite after the restructuring.

The new company has total assets worth $36 billion (Rs 1,95,000 crore), net income of $1.9 billion (Rs 10,000 crore) and cash and liquid investments of $7.7 billion

(Rs 42,000 crore) as on March, 2013.

It will also inherit almost 87% of Vedanta's debt, which was $16.593 billion in March 2013, as loans taken to fund the Cairn India acquisition get transferred to Sesa

Sterlite. Accordingly, Sesa Sterlite has a debt of $14.399 billion.

Minimum Synergy

Implied Probability of Success for the Deal

Proceeds on Success = Rs.104.934

Proceeds on Failure = Rs104.92 ― Rs147.12 + Rs 133

= Rs90.814

No reasonable operational synergies are visible

Suppose that investor reinvests the proceeds from short position of Sterlite at a risk-free rate and he maintains short

position for a period of 7 months, then implied probability of success is:

TRUE SYNERGY FROM SESA GOA & STERLITE INDUSTRIES DEAL

= Rs90.814

Combined equity valuation as on August 28, 2013

On Deal Success: = 15.77% × 660 + 𝑆𝑚𝑖𝑛

On Deal Failure: = 84.33% × 660

𝑚𝑖𝑛 + (84.33% × 660)

5% 0.58⟹ 𝑆𝑚𝑖𝑛 = −1239.16 𝑏𝑖𝑙𝑙𝑖𝑜𝑛

⟹ 𝑥 = 15.77%

DateSesa Goa ~

Sesa SterliteChange %

Sterlite

IndustriesChange %

20-Sep-11 223.5 133.85

20-Oct-11 209.6 -6.219239374 116.25 -13.14904744

20-Feb-12 245.2 16.98473282 133 14.40860215

28-Feb-12 208.2 -15.08972268 120.95 -9.060150376

30-Mar-12 194.25 -6.700288184 111.11 -8.13559322

31-Oct-12 170.55 -12.2007722 99.65 -10.31410314

3-Apr-13 152.65 -10.49545588 93.1 -6.573005519

1-Jul-13 148.5 -2.718637406 86.75 -6.820622986

20-Aug-13 150.65 -1.310186702 83.2 -10.63372718

28-Aug-13 169.55 12.54563558 90.2 8.413461538

29-Aug-13 192.5 13.53583014 90.2 0

30-Oct-13 198.2 2.961038961 -

30-Dec-13 202.7 2.270433905 -

11-Apr-14 195.9 -3.354711396 -

245.2

208.2 194.25

170.55

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SESA GOA ~ SESA STERLITE

Date

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Sterlite

DateSterlite

Industries

20-Sep-11 223.5 20-Sep-11

20-Oct-11 209.6 20-Oct-11

20-Feb-12 245.2 20-Feb-12 133

28-Feb-12 208.2 28-Feb-12 120.95

30-Mar-12 194.25 30-Mar-12 111.11

31-Oct-12 170.55 31-Oct-12 99.65

3-Apr-13 152.65 3-Apr-13 93.1

1-Jul-13 148.5 1-Jul-13 86.75

20-Aug-13 150.65 20-Aug-13 83.2

28-Aug-13 169.55 28-Aug-13 90.2

29-Aug-13 192.5 29-Aug-13 90.2

30-Oct-13 198.2 30-Oct-13 -

30-Dec-13 202.7 30-Dec-13 -

11-Apr-14 195.9 11-Apr-14 -

170.55 152.65 148.5 150.65

169.55 192.5 198.2 202.7 195.9

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SESA GOA ~ SESA STERLITE

133 120.95

111.11 99.65

93.1 86.75

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STERLITE INDUSTRIES

86.75 83.2 90.2 90.2

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STERLITE INDUSTRIES

Share Price Stock SwapValue

Current Share price(Seas Goa) 223.5 3 670.5

Current Share price(Serlite) 133.85 5 669.25

Spread 1.25

Period for Deal 5 Month

Start Date of deal

Buy 5 Share of Sterlite 669.25

Short sell 3 share of Sea Goa -670.5

695.01

If Deal Success Net Pay off 695.01

Probability of Success P

If deal not success full Stand Alone share Price after 5 months

Sell Sterlite share 604.75 SG 208.2

Recived short Sell Money 695.01 st 120.95

Pay For pfizer share (624.60)

Net Pay ( If Unsucessfull) 675.16

Probability of Unsucessfull deal 1-P

So this mean

669.25=( 695.01*P+675.16*(1-P))/(1+9%)^(5/12)

Probability of success P 0.93

Invest monet from short sell at RF For 5 month

Stand Alone share Price after 5 months

Copy of MAC Assignment 2 - Group 3-1

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Transcript of Copy of MAC Assignment 2 - Group 3-1