Vedanta Limited: Strategic Restructuring to Tackle Conglomerate Discount

Vedanta Limited (VEDL), an Indian conglomerate, operated in natural resources business segments, including aluminum, power, steel, oil and gas, and base metals segments such as copper, zinc, lead, silver. In September 2023, the company’s market value was approximately half of its intrinsic value, as its individual business segments were estimated to be worth significantly more operating independently.<br><br>The chair of VEDL needed to take the necessary steps to enhance shareholder value by unlocking conglomerate discounts. The combined segments were perceived to generate negative synergies for the conglomerate, as indicated by the trading multiples of comparable companies. In looking for viable ways to eliminate the discount, he had to choose among the following options: (1) a share repurchase, (2) divestiture, (3) a spinoff of one or more segments, or (4) a spinoff of all segments.

This case can be used at both undergraduate and postgraduate levels. It helps explain corporate restructuring through spinoffs in the areas of financial and strategic management. It pertains to the recognition of a conglomerate discount and examines the strategies aimed at addressing and reducing it to unlock shareholder value. It provides students with insights into corporate restructuring and the events surrounding it. A comprehensive study of the case and the assignment questions will enable students to understand and comprehend the business problem and to do the following:<ul><li>Identify the conglomerate discount through the sum-of-the-parts valuation method.</li><li>Evaluate the rationales for various strategies to address a conglomerate discount.</li><li>Explain the strategic position of a company’s business segments using the Boston Consulting Group (BCG) matrix.</li><li>Analyze a company’s valuation using the discounted cash flow (DCF) modelling technique.</li><li>Evaluate a company’s position based on an analysis of its strengths, weaknesses, opportunities, and threats (SWOT).</li></ul>

• Corporate Restructuring
• Spinoffs
• Firm Valuation