Under the agreement, Shell has granted Essar exclusivity for the acquisition until 1 April 2011 (exclusivity period) whereby Essar has the option until 31 March to enter into an asset purchase agreement.
If by that time Essar decides not to proceed with the acquisition, it will have to pay Shell a break fee of $50m.
If Essar Energy has executed the deal by 31 March 2011, Shell will have to decide whether to proceed with the agreement within three days.
If Shell does not execute the agreement within that period, it will pay Essar Energy a break fee of $10m.
The acquisition will be completed during the second half of 2011 and will be subjected to certain conditions including the approval of Essar Energy’s shareholders.
Payment for the refinery will be made in two stages, with $175m payable on completion of the acquisition and another $175m will be paid on completion of the first anniversary of the acquisition.
Payments from Essar Energy to Shell for the acquisition will be funded from existing cash resources and potentially from a new debt facility.
The acquisition of the Stanlow refinery, which is the second largest refinery in the UK, will give Essar Energy direct access to the UK market.
The assets purchase is expected to increase Essar Energy’s current refinery production by approximately two thirds.
The acquisition is in line with the company’s strategy to provide options for the export of products from the company’s refinery at Vadinar in the Indian state of Gujarat.
