Gokaldas promoters forego non-compete fee

Global private equity fund Blackstone has struck a free non-compete agreement with the promoters of Gokaldas Exports, in an unprecedented move in the country's mergers and acquisitions (M&As) scenario, where non-compete fees are sometimes as hefty as 25 per cent.

Industry experts said the move, which came after market regulator Sebi blocked two discriminatory payments to shareholders on account of non-compete fees, might be a trendsetter in Indian M&As.

"Blackstone's proposed management buyout of Gokaldas has triggered the consolidation in the scattered textiles industry. The free of cost non-compete agreement will be a benchmark in structuring future M&A deals," said a legal expert.

On Monday, Blackstone agreed to pay Rs 275 a share for acquisition of 50.1 per cent stake from the Bangalore-based Hinduja family, promoters of Gokaldas Exports. It will also purchase 20 per cent stake from the ordinary shareholders at the same price. The total cost of acquisition is expected to be around Rs 682 crore.

In the recent past, two non-compete agreements irked the market regulator, who directed the buyers to pay the same price to the ordinary shareholders and the promoters. In both cases, the promoters charged 25 per cent premium over the price to be received by the ordinary shareholders on account of non-compete fees.

The regulator had asked German cement maker Heidelberg to scale up the price of its open offer for shareholders of Mysore Cements by 25 per cent to Rs 72.50 a share.

Sebi's observation came after Heidelberg bought majority control in Mysore Cements from the promoters at Rs 72 a share and proposed to pay Rs 58 to the ordinary shareholders. The promoters were to get the extra money on account of non-compete fees, which Sebi didn't find merit in.

Sebi also asked private equity fund Actis to increase the price of the open offer for minority shareholders of Phoenix Lamps by 25 per cent.

Actis proposed to pay Rs 152 a share to minority shareholders, while it paid Rs 170 a share to the Gupta family, the promoters. While Actis made the open offer according to the Sebi directive, Heidelberg challenged the Sebi observation before SAT.

The Hinduja family will retain the put option to sell its remaining 20 per cent stake to Blackstone at a "fair value" later, as per the agreements between the parties. Blackstone has the right of first offer and a drag-along right in respect of the shares held by the Hindujas.

The offer for the minority shareholders will open on October 5 and will close on October 24.

The Gokaldas share closed today at Rs 253.80 on BSE, 0.67 per cent higher than its previous close.