Bumper pay-outs after Cairn cedes control of Indian arm

The Scottish firm has finally sold a controlling stake in its Indian subsidiary to mining giant Vedanta Resources, a fellow FTSE-100 constituent that is diversifying into oil from minerals.

The deal was unveiled in August 2010 but has been delayed by disagreements with the Indian government over the level of royalty payments.

Cairn yesterday received $4.1 billion (£2.6bn) in cash from the miner in return for a 30 per cent stake in Cairn India, on top of the 10 per cent stake it sold to the firm in July for $1.4bn.

Investors will receive about £1.58 in cash for each share they hold in Cairn, possibly through a special dividend or the issuing of so-called “B-shares” that could then be bought back by the firm.

The deal will trigger big pay-outs for Cairn’s directors, with exploration director and deputy chief executive Mike Watts receiving about £4.4m.

Chief financial officer Jann Brown will collect about £1m, while former chairman Norman Murray – who still retains a stake in the firm – gets about £313,000.

Simon Thomson, who took over from Gammell as chief executive in June, said: “I am delighted to announce completion of this transaction, which represents a major milestone in Cairn’s history.

“It crystallises the very significant value creation that we have delivered from our Indian business and allows us to return around $3.5bn to shareholders. Our remaining 22 per cent shareholding in Cairn India, retained cash and balance-sheet strength provide financial flexibility and an excellent platform for future growth.”

Thomson will pick up just under £1.4m under the deal.

Institutional shareholders will be the big winners from the sale, with investment manager BlackRock pocketing about £220m through its near-10 per cent stake and banking giant HSBC’s 8.9 per cent share giving it about £196m.

Scottish investment houses will also share in the bumper pay-day, with Scottish Widows Investment Partnership netting £92.4m and fund manager Baillie Gifford receiving some £72m.

Smaller shareholders will also join in the spoils, with around 3,000 individuals listed on the company’s share register. If a shareholder invested £1 in the company 20 years ago, then Cairn claims they will have received a 240-times return.

Cairn itself will use the remaining money from the sale to fund its next drilling mission in Greenland, following two unsuccessful years in which substantial amounts of oil have not been found beneath Arctic waters.

Gammell, a former player for Scotland’s national rugby side, founded Cairn in 1980 and took it to the stock exchange in 1988.

He became chairman in June as he balances his commitments in public life, which include being a director of the company formed to run the 2014 Commonwealth Games in Glasgow and as a member of the British Olympic Advisory Board.

Cairn found gas in the Bay of Bengal in 1996 but the firm made a name for itself with its mammoth oil discoveries in the north-west Indian state of Rajasthan in January 2004, under Watt’s exploration team.

The find propelled Cairn into the FTSE 100 later that year and led to Cairn India being spun out as a separate company in 2007, with a listing on the Mumbai stock exchange.

Sanjeev Bahl, an analyst at Numis Securities, said: “In our view, a retained $1.5bn of cash will be used to fund the company’s on-going exploration activity in Greenland, early-stage exploration activity in the Mediterranean and selective asset transactions.”

Cairn’s pay-out will mark the second large return of Scottish oil industry cash to investors this year after Aberdeen-based energy services firm Wood Group gave just under £1.1bn back to shareholders in June following the sale of its well support division to General Electric and its purchase of local rival PSN.