After successfully acquiring one of the largest downstream aluminum companies in the US, Novelis, for $5.6 billion, the AV Birla group, headed by Kumar Mangalam Birla, is likely to emerge as the front-runner for Sesa Goa, one of the leading iron ore export companies in India.
The final round of bidding for Mitsui’s 51 per cent stake in Sesa Goa witnessed a substantial decline in of more than 25 per cent from the previous round because the Union Budget for 2007-08 slapped an export duty of Rs 300 per tonne on iron ore.
Although three bidders, including Arcelor Mittal, Vedanta Resources and the AV Birla group have submitted bids, the last appeared to be the front-runner, sources close to the development said on condition of anonymity.
Arcelor Mittal’s bid was the highest at around Rs 1,700 a share, sources said. ”However, its bid may not be accepted as Arcelor Mittal has imposed many conditions, which will be difficult to be met by the seller,” the sources said and added, “It is almost like withdrawing from the race.”
The AV Birla group, the second highest bidder, had submitted an unconditional bid at around Rs 1,550 a share, the sources said. Vedanta Resources, controlled by Anil Aggarwal, is learnt to have put in a bid of around Rs 1,300 a share.
Leading iron ore exporters like the Brazilian Rio Tinto and CVRD were initially interested when Japanese conglomerate Mitsui & Co put on the block its 51 per cent stake in Sesa Goa. They had participated in the first two rounds of bidding.
The initial bids were in a band of Rs 2,200-2,300 a share. “But the export duty on iron ore will shave Rs 150-175 crore off Sesa Goa’s bottom line. This, in turn, impacted its valuation by over Rs 450 a share,” said one of the bidders.
The AV Birla group bid of around Rs 1,550 a share, which is lower then the current market price of Rs 1,750 a share, puts the equity value of Sesa Goa at around Rs 6,100 crore. For acquiring 51 per cent, the group needs to fork out Rs 3,110 crore. Since the average market price of the Sesa Goa scrip is higher than this, the price for the follow-on public offer for another 20 per cent stake from the open market is expected to be higher.
Sesa Goa has extractable reserves of over 150 million tonnes of iron ore, which can be increased significantly. The ore is located in Goa, Karnataka and Orissa, The company exports around 10 million tonnes of iron ore annually.