CHAPTER 1 BROAD FEATURES OF RESTRUCTURING STERLITE INDUSTRIES (INDIA) LIMITED Sterlite Industries (India) Limited (Sterlite), is a subsidiary of Vedanta

Resources plc, the London-based FTSE 100 metal and mining group. Sterlite Industries (India) Limited was incorporated on September 8, 1975 under the laws of India. It was acquired by Mr. Anil Agarwal in 1979 and the company has grown from a small wire and cable manufacturing company to one of Indias leading non-ferrous metals and mining companies.1 The principal operations of the company are located in India, where it has a substantial market share in each of our main metals: aluminium, copper, zinc and lead.

http://www.sterlite-industries.com/index.aspx

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Copper Sterlite is one of the leading copper producers in India. The copper business comprises smelting and processing of copper and production of its by-products. The operations include a smelter, refinery, phosphoric acid plant, sulphuric acid plant, dore plant and copper rod plant at Tuticorin in the state of Tamil Nadu in southern India; and a refinery and two copper rod plants at Silvassa in the Union territory of Dadra and Nagar Haveli in western India, as well as a precious metal refinery at Fujairah in the UAE. In addition, they own the Mt. Lyell copper mine at Tasmania in Australia, which provides around 8% of our copper concentrate requirements at Sterlite. Zinc and Lead The majority-owned subsidiary, Hindustan Zinc Limited (HZL) is Indias only fully integrated zinc producer with a 74% market share by production volume of the Indian zinc market. HZLs products include refined Zinc metal, refined Lead metal, Silver, Cadmium and Sulphuric Acid. HZL is on course to become the worlds largest integrated Zinc-Lead producer and are the largest primary Silver producer in India. Aluminium Located in Korba in the state of Chhattisgarh in central India, the majority owned subsidiary, Bharat Aluminium Company Limited (BALCO), is one of the four primary producers of aluminium in India. Sterlite owns 51 % of the share capital of BALCO. It is one of the five primary producers of aluminium in India and had a 28.0% primary market share by production volume in India in fiscal 2009. The company is expanding its aluminium business through Vedanta Aluminium. It holds a 29.5% minority interest in Vedanta Aluminium, a 70.5%-owned subsidiary of Vedanta. Energy Business The company have been building and managing captive power plants since 1997. The whollyowned subsidiary Sterlite Energy is building a 2,400 MW thermal coal-based power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa which is nearing completion. The construction work is progressing well and the first unit is expected to get
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commissioned in Q1 FY 2011, with the remaining three units to be progressively commissioned by end of FY 2011. ASARCO (AMERICAN SMELTING AND REFINING COMPANY) ASARCO is a fully-integrated producer of copper, headquartered in Tucson, Arizona, with operations in Arizona and Texas. The company has over 2,000 employees. ASARCO also owns a number of properties throughout the US that are no longer active, but that have ongoing environmental liabilities. The Company was established in 1899 as the American Smelting and Refining Company. It once operated mines and mills in numerous locations throughout the United States, Mexico, Canada, Australia and Peru.2 After 100 years as an independent company, ASARCO was purchased in 1999 by the affiliated U.S. entities of Mexican conglomerate, Grupo Mexico. Grupo Mexico is the sole shareholder of Americas Mining Corporation, which is the sole shareholder of ASARCO. By late 2001, Asarco was already in trouble and began selling assets to generate cash. The most significant sale came in 2003 when Americas Mining Corporation, Asarcos corporate parent, purchased what has been described as Asarcos crown jewel. AMC paid Asarco $500 million in cash, a note for $123 million, and forgave intercompany debt of $42 million, but even this did not save Asarco, which continued to struggle despite rising copper prices at the time. On August 10, 2005, while under Grupo Mexico control, ASARCO filed a petition to enter Chapter 11 bankruptcy where it remains today. In December 2005, shortly after the bankruptcy filing, control of ASARCO was taken away from Grupo Mexico and placed in the hands of an independent board of directors. The bright side to this case was that the Debtor still held valuable assets, and these fuelled a bidding war that would eventually satisfy all creditors claims in full. The two primary bidders were Sterlite (USA) Inc., and AMC. The bids changed over time as each tried to top the other while keeping an eye on the price of copper. Sterlite won initially, becoming the plan sponsor and contracting to purchase the assets of Asarco for $2.6 billion, but later defaulted. Ultimately,

www.asarco.com/

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the revised Sterlite bid was incorporated into the Debtors proposed plan of reorganization, but the court lifted exclusivity so that AMC was able to also propose a plan offering to purchase the assets of Asarco for roughly $2.2 billion. After a lengthy and contentious confirmation proceeding, Judge Schmidt recommended approval of the plan sponsored by AMC. The District Court agreed and confirmed the Parents plan, which promised full payment, in cash, of principal and interest to all creditors. A trust was set up to provide for present and future asbestos claimants, and the Parent paid $1.79 billion to address environmental contamination at sites across the United States. Sterlite- Asarco Deal Sterlite Industries (India) Limited (Sterlite) signed a new agreement with ASARCO LLC (Asarco), a Tucson based mining, smelting and refining company, for the purchase of substantially all the operating assets of Asarco. This is a Cross-border Acquisition. When a company from one country buys all or a majority of the voting stocks of another company from different country and then runs the acquired company as a subsidiary then this type of acquisition is known as Cross Border Acquisition. Assets Acquisition Sterlite planned to acquire 100% operating assets of Asarco. The integrated assets to be acquired by Sterlite include three open-pit copper mines and associated mills and SX-EW in Arizona, USA, a copper smelter in Arizona, USA and a copper refinery, rod and cake plants and a precious metals plant in Texas, USA.3 Reasons for Assets Acquisition: Dependence On Third Parties Major costs of raw material are concentrated in copper segment of the Sterlite. Around 92.0% of copper requirements are sourced from third parties. Fully owned copper mines (Mt. Lyell in Tasmania, Australia) supply only 8% of copper concentrate requirement.
3

http://www.valuenotes.com/valuenotes/carticles.asp?cap=3&cn=15050007

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The balance is sourced from other mines through a mix of long term contracts and spot purchases. If existing copper reserves cannot be mined at competitive costs or if company cannot secure additional reserves that can be mined at competitive costs and company may become more dependent upon third parties for copper concentrate. As a result, profitability and operating margins of copper business depends upon ability to obtain the required copper concentrate at prices that are low relative to the market prices of the copper products that are sold by the company. Company purchase copper from the suppliers at prevailing market rate for the TcRc. The TcRc has historically fluctuated independently and significantly from the copper LME price. The company aim to make LME price as a base for both copper concentrate purchases and sales of finished copper products. If company acquires the copper reserve of Asarco it would be possible to base all operations of the company on basis of LME copper metals. To expand companys copper reserves and reduce the cost of raw material, the company planned to go for Vertical Backward Integration. This would substantially increase the copper reserves, hence, reduction in the cost of production and expand the market for its copper products. Access to rich copper reserves: Asarcos mines currently have estimated reserves of 5 million tones of contained copper. It is third largest copper producer in USA. It is easier and cheaper to buy existing operations of Asarcos assets which are well established and functional than to explore and build new mines. Increase In Copper Consumption In Future From 2005 to 2008, consumption in the Indian primary copper market increased at a compound annual growth rate of 14.3%. The consumption by the electronics and power segments witnessed growth at a compound annual growth rate of 3.3% during fiscal years 2002 to 2008. The total domestic demand for primary copper is estimated to have increased from 415,000 tons in 2005 to 598,000 tons in 2008, a compound annual growth rate of 12.9% over three years. In addition, the demand for copper in India is expected to grow from 598,000 tons in 2008 to 1.2 million tons in 2020, representing a compound annual growth rate of 5.8%. This compares to world demand for copper, which Brook

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Hunt estimates will grow from 18.0 million tons in 2008 to 24.7 million tons in 2020, representing a compound annual growth rate of 2.7%, according to Brook Hunt. This acquisition is in line with strategy Sterlite for leveraging existing skills to become a diversified global copper producer and creating long term value for shareholders.

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CHAPTER 2 BRIEF DETAIL OF BALANCE SHEETS OF TWO ENTITIES Balance Sheet Analysis Of Sterlite Industries

Sterlite Industries(India) Balance Sheet Mar '074 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt 111.7 111.7 0 0 4,346.23 0 4,457.93 100 2,709.75 2,809.75 141.7 141.7 0 0 13,014.60 8.72 13,165.02 572.05 2,685.76 3,257.81 Mar '085 12 mths

In Rs. Cr

Mar '096 12 mths

141.7 141.7 0 0 13,897.32 0.82 14,039.84 303.8 3,526.24 3,830.04

4 5

Sterlite Annual Report 2006-07 Sterlite Annual Report 2007-08 6 Sterlite Annual Report 2008-08

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Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets

7,267.68

16,422.83

17,869.88

2,688.51 971.27 1,717.24 32.23 2,912.96 1,849.16 914.07 50.57 2,813.80 1,384.97 181.5 4,380.27 0 1,437.02 338 1,775.02 2,605.25

2,765.34 1,109.85 1,655.49 52.49 12,357.03 2,305.99 831.88 45.67 3,183.54 1,261.11 31.31 4,475.96 0 1,149.72 968.42 2,118.14 2,357.82

2,889.07 1,275.41 1,613.66 32.16 11,661.85 1,406.90 526.89 61.5 1,995.29 2,872.62 1,676.34 6,544.25 0 1,306.62 675.42 1,982.04 4,562.21

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Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) Analysis

0 7,267.68 1,096.90 79.82

0 16,422.83 2,825.95 185.69

0 17,869.88 6,696.82 198.15

In 2007, the net profit of the company increased by 53%. The increase in revenue was primarily due to increase in copper sale by 15%. In 2008, further companys net profit increased by 21% from Rs. 784 crore to Rs. 952 crore, hence, improvement in the profitability of the company. Similar trend can be seeb in 2009, the net profit remarkably increased by 30%. The companys profitability with is increasing every year, therefore, if company acquires ASARCO mines then its net profit could further increase with reduction in the cost of obtaining raw materials from the third parties.

The company has favourable EPS, which represents positive image of the company in the market. Hence, if in any year company requires funds it could go for public offer.

The company also has declared dividend of about 200% in 2008. The company also made payment for its preference shareholders in year 2006-07. Hence, company has fulfilled its payment obligations.

Company in all these years consolidated its leadership position in domestic copper with record sales of 198,455 MT of copper with a market share of 29% in the primary market. The company also exports its copper rods in international market.

The cost of raw material in years has decreased in 2008 due to global slowdown, which led to decrease in copper prices and increase in revenue of the company. However, now with growing copper if company acquires the reserves of Asarco it could further reduce its cost of production and increase the profits.

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The company has strong cash and bank balance in all the three years, which shows that it could discharge its payment obligations in cash when it acquires assets of Asarco.

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CHAPTER 3 PURPOSE BEHIND THE RESTRUCTURING EXERCISE Main Purpose for Acquisition of ASARCO LLC by Sterlite Industries (India) Ltd. a) Economies of Scale:7 This generally refers to a method in which the average cost per unit is decreased through increased production, since fixed costs are shared over an increased number of goods. In a laymans language, more the products, more is the bargaining power. This is possible only when the companies merge/ combine/ acquired, as the same can often obliterate duplicate departments or operation, thereby lowering the cost of the company relative to theoretically the same revenue stream, thus increasing profit. It also provides varied pool of resources of both the combining companies along with a larger share in the market, wherein the resources can be exercised. b) Increased revenue /Increased Market Share: This motive assumes that the company will be absorbing the major competitor and thus increase its power (by capturing increased market share) to set prices. Thus by acquiring the ASARCO, Sterlite would have become the third largest metal company globally. c) Corporate Synergy 8 : Better use of complimentary resources. It may take the form of revenue enhancement (to generate more revenue than its two predecessor standalone companies would be able to generate) and cost savings (to reduce or eliminate expenses associated with running a business). d) Taxes: A profitable can buy a loss maker to use the targets tax right off i.e. wherein a sick company is bought by giants. e) Geographical or other diversification: This is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders. Thus, Sterlite will gain the geographic edge in the North American Copper market. It would give a competitive advantage to the company having mines at various places all over the world.

7 8

Barbaso Fabrizo The Harmonization of Company Law with regard to Merger and Divisions J.B.L, 176 (1984) Leacock J. Stephan Resrtricting Hostile Take-over in American Law J.B.L.,514 (1987)

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f) Resource transfer: Resources are unevenly distributed across firms and interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. g) Improved market reach and industry visibility: Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. The main reasons for the sudden impetus to restructure in India are as follows: a) Deshackling of strict MRTP (3) provisions and new government policy of relicensing b) Increased competition is another key element for giving rise to corporate restructuring. c) Mounting pressure on margins have necessitated higher volume of business, resulting in mergers and acquisitions or the grand concentration of strategy has led to demergers of non profitable businesses, and d) All round resource optimization in existing businesses to streamline operational profit and to stay fit in competition. This acquisition is in line with our strategy of leveraging our existing skills to become a diversified global copper producer and creating long-term value for shareholders, Sterlite chairman Anil Agarwal said. Once complete, this deal will make Sterlite one of the leading copper miners in the world. It has presence in India, Zambia and Australia. This deal will mark Sterlites North American entry. Asarco has 5 million tons of copper reserves and produced 235,000 tons of refined copper in 2007.

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CHAPTER 4 MODALITIES OF THE SCHEME OF RESTRUCTURING Sterlite entered into a PSA with Asarco, a Tucson-based mining, smelting and refining company, under which it agreed to purchase Asarcos operating assets for a consideration of $2.6 billion. The asset acquisition is on a cash free and debt free basis. Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations. Due to financial turmoil, the steep fall in copper prices and adverse global market conditions, in October 2008, the Company and Asarco entered into discussions to renegotiate the prior agreement. Since the Company continued negotiation, Asarco agreed to not draw on the US$50 million letter of credit given by the Company as deposit at the time of signing the PSA. The Company entered into a new agreement (New PSA) following such renegotiations of the prior agreement on March 6, 2009 under which it agreed to purchase the same operating assets of Asarco for $1.7 billion which it agreed on June 12, 2009 to increase to $1.87 billion, mostly related to an expected increase in working capital on the closing date. The purchase consideration consists of:9 a) A cash payment of US$1.1 billion on closing; and b) A senior secured non-interest bearing promissory note (the Note) of US$770 million, payable over a period of nine years as follows: US$20 million per year from the end of second year for a period of seven years; and A terminal payment of US$630 million at the end of the ninth year, totaling to US$770 million. In the event that the annual average of daily copper prices in a particular year increases beyond US$6,000 per tonne, the annual payment in that year will be proportionately increased subject to a maximum of US$85.56 million and the terminal payment in the ninth year will be correspondingly reduced, keeping the total payment at US$770 million. The principal amount of the Note will be adjusted upwards for any further increase in working capital on closing. The

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obligations under the Note are secured against the assets being acquired by Sterlite (USA), Inc. and are without any recourse to the Company. The US$1.1 bn in upfront payment will make Sterlite a net debt company, though gearing will remain nominal. Subsequent payments should be possible from Asarco operations. We would have been more positive if the transaction had not taken place or if the acquisition price was lower than US$1 bn. We remain positive on Sterlite due to its Zn and power businesses. The Company has deposited US$50 million in form of letter of credit while entering the New PSA, taking the total deposit/letter of credit to US$100 million which will be adjusted against the Purchase consideration. The Company will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations. This consummation of the agreement remains contingent upon the confirmation of a Chapter 11 plan of reorganization proposed by Asarco and sponsored by Sterlites wholly owned subsidiary Sterlite (USA), Inc. by the US Bankruptcy Court for the Southern District of Texas. The US Bankruptcy Court has approved adequacy of Disclosure Statement submitted by the Company and subsequently, on May 15, 2009, the Company has deposited further US$25 million in the form of letter of credit. Separately, Sterlite (USA), Inc. has agreed with the representatives appointed pursuant to Asarcos reorganization proceedings under Chapter 11 of the US Bankruptcy Code to represent all persons with asbestos claims and demands against Asarco and/or its subsidiary debtors (the Asbestos Claimants)10 and Asarco to grant a put option to the asbestos settlement trust to be established (the Asbestos Trust) pursuant to which the Asbestos Trust shall be entitled to sell to Sterlite (USA), Inc. its entire interest (expected to be approximately 27%) (the Asbestos Litigation Interest) in the Brownsville judgment against Americas Mining Corporation, a subsidiary of Grupo Mxico, S.A.B de C.V. (the Brownsville Judgment), which was awarded by the US District Court for Southern District of Texas, Brownsville Division, against Americas Mining Corporation requiring it to return to Asarco 260.09 million common stock of Southern Copper Corporation, together with past dividends received with interest, worth over $6.0 billion in aggregate.

10

http://www.business-standard.com/pdf/sterlite%20-%20event%20update,%20emkay%20100908.pdf

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The Asbestos Litigation Interest in the Brownsville Judgment is to be distributed for the benefit of all Asbestos Claimants. The grant of the put option would be subject to the approval and consummation of the reorganization plan proposed by Asarco and sponsored by Sterlite USA. The put option is exercisable by the Asbestos Trust at any time after the end of the second year from the effective date of the approved reorganization plan (the Effective Date) through the end of the fourth year from the Effective Date at the price of $160 million less the amount of any receipt or other recovery on account of the Asbestos Litigation Interest prior to the exercise of the put option. The Company does not expect any obligation on account of this agreement. Funding details SIL would fund the acquisition through a mix of cash and debt. Sterlite would have funded this acquisition through a mix of debt and cash in the ratio of 50:50 as Sterlite Industries Standalone has liquid investments of $1.75bn raised through its ADS issue in 2007, which could be utilized for funding the acquisition11. Also considering the strong cash flows for ASARCO SIL need to be in a position to raise $1.5bn in books of ASARCO as a non-recourse debt. ASARCO Assets Acquisition details ASARCO has copper reserves with 5mn tones of contained copper, which would satisfy ASARCOs existing capacity over the next 25-28 years. The operating assets of the company include: Of the total sales volume of 235,000 tones ASARCOs in house operations generated sales volume of 180,000 tones and the balance was through tolling and inventory liquidation. Since, the refining capacity of the company stands at 0.5mn tones SIL would ramp up its smelter capacity equivalent to its refining capacity over the next 2 years and might reduce its cost of production to $3300 per ton from its current cost of production of $4300 per ton (Excluding profit through tolling). Capital expenditure (Capex) for debottlenecking SIL was expected to incur an annual capex of $80-$100mn over the next 2 years for maintenance of its assets and enhancing its production capacity through de-bottlenecking. SIL has already citied opportunities in the Sx/EW plant to double its production capacity from current capacity of 25000

11

http://money.rediff.com/companies/sterlite-industries-india-ltd/15050007/

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 30000 tones by incurring an incremental capex of $60-$70mn. Hence, we expect similar initiatives would help enhance capacity and reduce the average cost of production for ASARCO. Financial Accretion & Outlook Considering the funding pattern, SIL is expected to utilize its liquid investments for funding the acquisition and raise non-recourse debt equivalent to 50% of its funding requirement, which would lead to interest outflow. Hence, the deal to EPS accretive to the tune of Rs4.8per share based on its CY07 financials. However, considering SILs ability to optimize the utilization of assets through de-bottlenecking at minimal incremental capex it is expected that ASARCO to be a strong contributor in terms of profitability in the long run as it realigns its refining and smelting capacity and reduces its average cost of production.

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CHAPTER 5 EXPECTED SYNERGY WITH WHICH THE PROJECT WAS UNDERTAKEN

Geographic diversification in the North American market Copper consumption has three main product groups: copper wire rods, copper alloy products and other copper products. The predominant intermediate use of copper has been the production of copper wire rods, which accounted for approximately half of total copper production in 2007. Copper alloy products were the next largest users of copper in 2007, followed by other copper products, which include non-electrical applications such as tubes for air conditioners and refrigerators, foils for printed circuit boards and other industrial and consumer applications. In the global copper consumer market in 2008, the construction segment accounted for 35% of copper consumption, followed by the electronic products segment (32%), the industrial machinery segment (12%), the transportation equipment segment (11%) and the consumer products segment (10%). The copper industry has three broad categories of producers: Miners, which mine the copper ore and produce copper concentrate; Custom smelters, which smelt and refine copper concentrate to produce copper metal; and12 Integrated producers, which mine copper ore from captive mines and produce copper metal either through smelting and refining or through leaching. The world price of copper nearly trebled between the start of 2005 and the summer of 2006, one of the most remarkable booms in commodity markets in many years. Much of the steep rise in price has been due to demand-side factors. World demand for copper has been rising much faster than the growth in market supply that result from new discoveries of copper and increased extraction rates of known reserves. In 2004, world copper consumption exceeded production by 843,000 tons and a similar demand-supply imbalance occurred in 2005 and the early months of 2006.

12

www.livemint.com/articles/2009/.../Deal-Analysis-Sterlite--Asar.html

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Total mined copper production decreased by 3% to 952,426 tons in 2008, mainly due to planned lower grades at Mount Isa, Alumbrera, Lomas Bayas and Kidd Creek mines. A strong second half production performance delivered a 16% increase compared to the first half. Leveraging Sterlites proven operational and project skills to develop and optimise Asarcos mines and plants An agreement with Asarco, a US-based copper mining, smelting and refining company for the sale of substantially all the operating assets of Asarco. Sterlite believed that the Asarco assets, which include three open-pit copper mines, which had estimated reserves of 5.2 million tons of contained copper, associated mills, SX-EW plant and a copper smelter in the State of Arizona, United States, and a copper refinery, rod plant, cake plant and precious metals plant in the State of Texas, United States, will be a good strategic fit with our existing copper business. Stable operating and financial platform for Asarco During the year, Sterlite produced 339,000 tons of copper and recorded an EBITDA of RsRs17.76bn including 28,000t of copper produced from Copper Mines of Tasmania. Sterlite has a total smelting capacity of 0.4mtpa. With the addition of ASARCO, the total copper smelting operations will stand at 0.65mtpa. They believed that the deal might be very positive for Sterlite given the mining assets including smelter that it had acquired (minus the legacy liabilities
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relating to asbestos and environmental claims). We believe Sterlite has the proven capability of turning around companies. Given the power shortage in China and South Africa leading to sustained higher prices of aluminum and faster than assumed commissioning time of 0.25mtpa aluminum smelter of VAL coupled with the acquisition of ASARCO, we maintain BUY on Sterlite. The new price of US$1.7 bn has a NPV of US$1.4 bn, US$400 mn higher than our previous estimate: to take Rs30/share out of fair value. As per Sterlites management, Asarco can produce 200 kt of refined copper: the 237 kt CY08 sales volume includes tolled production. The cost (ex. tolling) is US$1.5/lb. At the current cost, production and prices, valuation is 10.5x EV/EBITDA, versus the sector average of 8.2x CY09. Sterlite expects production to rise 25% to 250 kt and costs to fall 20% to US$1.2/lb at current Cu prices. Asarcos Jan. 2009 P&L shows a US$1.5/lb cost of production, a sharp fall. EBITDA of US$1.8 mn turned positive after four months. The US$1.1 bn in upfront payment will make Sterlite a net debt company, though gearing will remain nominal. Subsequent payments should be possible from Asarco operations. The synergy is positive as the valuation of assets of ASARCO LLC is quoted at a low price of US$ 2.6 bn. If the price would have been higher than US$ 3 bn then it was expected to be negative or not to enter into such an acquisition.13 Post-acquisition, Sterlite is also hopeful of increasing Asarcos mining output by 20 per cent to 250,000 tpa (at marginal capex), leading to a visible improvement in profitability. In this event, Asarcos EBIDTA could rise to $450-500 million (in FY11) and net profit to $200-220 million (assuming a 10 per cent rise in copper prices from current levels). Hence, analysts expect the deal to add to Sterlites consolidated earnings (by 10-15 per cent) from FY11 onwards. But, as the acquisition is likely to be completed around September 2009, and in view of the high costs and low copper prices, the deal could lower earnings by 1-2 per cent in the interim. The latter assumes a reduction in other income (about Rs 300 crore) of Sterlite, as it would need to pay cash worth Rs 5,700 crore, and Asarcos net profit of Rs 175200 crore in FY2009.

13

http://www.business-standard.com/pdf/sterlite%20-%20event%20update,%20emkay%20100908.pdf

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CHAPTER 6 IMPORTANT ISSUES RELATED TO FINANCIAL, LEGAL AND PROCEDURAL INVOLVED IN THE ARRANGEMENT The amendments made by Companies (Amendment) Act, 1965 in the Chapter V of Companies Act enable the Government to look up in the cases of amalgamation and reconstructions of the companies. These amendments were made on the recommendations of Daphtary-Sastri committee based on the report of the Vivian Bose Commission of Inquiry. Section 394 of the Companies Act, 1956 is the main section which deals with the reconstruction and amalgamation of the companies. But this section requires companies to make application to the court under Section 391 which empowers the court to sanction the compromise or arrangement as proposed by the companies. It covers restructuring, merger, de-merger, and hiving off of a unit by a company. The consent of the company in general meeting under Section 293(1)(a) is also required for hiving off an undertaking of the company. Section 392 further empowers the High Court to enforce compromise or arrangement order by such court under Section 391 of the Companies Act. Section 393 provides supportive provisions for compliance of the provisions or directions given by the court. All of ASARCOs sitesoperating, shuttered, or in remediationwere affected by the 2005 Chapter 11 bankruptcy filing, as environmental and community health concerns mounted, public pressure increased, and projected cleanup costs skyrocketed, ASARCO closed most of its operations. As Sterlite was purchasing Asarco out of bankruptcy14, the information available to it has been more limited than might otherwise be the case. Asarco exited the bankruptcy in December 2009 and is under the control of Mexican miner Grupo Mexico now The US Bankruptcy Court will decided which proponents plan will be confirmed based on, among other things, whether the plan a. Meets the statutory requirements for confirmation under the US Bankruptcy Code b. Treats creditors more fairly than the others,

14

www.thaindian.com/.../sterlite-revises-bid-amount-for-asarco_100246141.html - United States

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c. Is more feasible than the others, and d. Is preferred by creditors based upon responses expressed in their ballots. Subjected to Legal Regime of US: Asarcos business and assets are located in the United States. If the acquisition is completed, company will be subject to extensive laws and regulations governing exploration, development, production, occupational health, mine safety, toxic substances, waste disposal, protection and remediation of the environment, protection of endangered and protected species, and other related matters in the United States, including the US Federal Clean Air Act and the US Federal Resource Conservation and Recovery Act, as well as local and state laws in the states of Arizona and Texas.15 The business will also become subject to political, economic and social conditions in the United States. Because company presently has no significant operations in the United States, these risks are different from and in addition to those to which our business has historically been exposed. According to the agreement signed by the Sterlite and ASARCO, if Sterlite group are not selected as the winning plan proponent, they will likely be the defendant of breach of contract claims demanding the payment of significant damages. Any adverse judgment or settlement would likely have a material adverse effect on their business, results of operations, financial condition and prospects.

15

http://www.business-standard.com/india/news/asarco-hauls-sterlite-to-court/389251/

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CONCLUSION For this deal there were two primary bidders that are Sterlite (USA) Inc., and AMC. The bids changed over time as each tried to top the other while keeping an eye on the price of copper. Sterlite won initially, becoming the plan sponsor and contracting to purchase the assets of Asarco for $2.6 billion, but later the deal was being cancelled. Ultimately, the revised Sterlite bid was incorporated into the Debtors proposed plan of reorganization, but the court lifted exclusivity so that AMC was able to also propose a plan offering to purchase the assets of Asarco for roughly $2.2 billion. After a lengthy and contentious confirmation proceeding, Judge Schmidt recommended approval of the plan sponsored by AMC. During the year the plan proposed by ASARCO and sponsored by the Companys wholly owned subsidiary, Sterlite (USA) Inc was rejected by the US District Court. The Company appealed against the order of US District Court. Subsequently, the Bankruptcy Court also approved the motion of ASARCO to terminate the settlement and Purchase and Sale Agreement (PSA) and allowed it to draw on the USD 50 million Letter of Credit. The Company has contested the same and has filed an application before the Bankruptcy Court for refund of USD 50 million drawn down by ASARCO and payment of compensation for legal expenses. The Company has provided Rs. 273.53 Crore (being the USD 50 million referred to above and other expenses related thereto) as exceptional item during the year ended 31 March 2010. In March 2010, ASARCO has also filed a complaint in US Bankruptcy Court for the alleged breach of the PSA signed in May 2008.

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BIBLIOGRAPHY

http://www.sterlite-industries.com/index.aspx www.asarco.com/ http://www.valuenotes.com/valuenotes/carticles.asp?cap=3&cn=15050007 Barbaso Fabrizo The Harmonization of Company Law with regard to Merger and Divisions J.B.L, 176 (1984) Leacock J. Stephan Resrtricting Hostile Take-over in American Law J.B.L.,514 (1987) http://www.valuenotes.com/valuenotes/Reports.asp?ReportType=HIS&companycode=15 050007 http://www.businessstandard.com/pdf/sterlite%20%20event%20update,%20emkay%201 00908.pdf http://money.rediff.com/companies/sterlite-industries-india-ltd/15050007/ www.livemint.com/articles/2009/.../Deal-Analysis-Sterlite--Asar.html www.thaindian.com/.../sterlite-revises-bid-amount-for-asarco_100246141.html - United States smartinvestor.in/BSCMS/PDF/sterlite%20-%20asarco%20acquisition.pdf http://www.business-standard.com/india/news/asarco-hauls-sterlite-to-court/389251/

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