Under the terms of the agreement, shareholders of Cairn will each get one equity and one redeemable preference share of Vedanta, for every share held.
Vedanta Resources said that the transaction is expected to help further simplify its internal processes and improve productivity.
Vedanta chairman Anil Agarwal said: "The merger of Cairn India and Vedanta Limited consolidates our position as India’s leading diversified natural resources champion, uniquely positioned to support India’s economic growth."
The transaction will combine the portfolio of Tier-I assets as well as improve financial flexibility to facilitate capital allocation to the highest return projects.
Cairn India CEO Mayank Ashar said: "The merger with Vedanta Limited will generate additional value for our shareholders and derisks Cairn India by providing access to a portfolio of diversified Tier-I, low cost, long-life assets, to deliver significant near term growth.
"Our Rajasthan fields continue to remain our core asset.
"The financial strength of the enlarged group will ensure greater access to capital to further Indian oil & gas development."
Upon completion of the transaction, Vedanta Resources will have 50.1% stake in Vedanta Limited. The enlarged entity will be 20.2% owned by Cairn India while Vedanta minority shareholders will hold the remaining 29.7% stake.
Subject to shareholder approvals of Vedanta Limited, Cairn India and Vedanta as well as other customary approvals, the transaction is planned to be completed in first quarter of 2016.
