Public shareholders of Cairn India will lose out on a whopping Rs 3,570 crore to the promoters who would be only beneficiary of a non-compete fees to be paid by its suitor, London-listed Vedanta group.
The non-compete fees, which market regulator Sebi had already proposed to abolish, are a common phenomena in takeover deals, and are paid only to promoters and other shareholders get no share of this pie.
The fee is paid by the acquirer to the promoters of the target company for not entering the same trade, and such payments could be as high as up to 25 per cent of the deal value.
In the Vedanta-Cairn deal, the fee works out to be around 15 per cent of the total size.
In Cairn India's $8.48 billion takeover by the NRI billionaire Anil Agarwal-led group, shareholders who would be missing out on this payment include state-run insurer LIC (which holds 2.57 per cent stake) and Malaysian energy major Petronas (14.94 per cent).
As part of the deal, the promoters will get non-compete fees totalling about Rs 6,000 crore. The non-promoter shareholders, with their over 71 crore shares amounting to a 37.64 per cent equity, would have got Rs 3,570 crore had the non-compete fees also been paid to them.
Vedanta today announced a deal to acquire a majority stake of up to 60 per cent in Cairn India, promoted by Edinburgh-based Cairn Energy with a 62.37 per cent stake.
Cairn Energy Plc said it will sell a minimum of 40 per cent and a maximum of 51 per cent stake to Vedanta for a price of Rs 405 per share. For other shareholders, Vedanta will make an open offer at Rs 355 per share for up to 20 per cent stake.
The price offered to the Cairn Energy includes a Rs 50 per share non-compete premium for Cairn Energy Plc in lieu of a commitment to not to enter into oil and gas business in India, Pakistan, Bhutan and Sri Lanka.
Following recommendations from a high-level panel set up to overhaul the takeover regulations, Sebi last month proposed that the non-compete fee, if being paid by the buyers, should be available for all the shareholders.
Sebi is currently seeking public comments to formulate final regulations in this regard.
The deal is subject to various regulatory approvals, including by the Sebi.
