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Cairn's Indian public shareholders to lose 
3,570 Crore
Wednesday, 18 August 2010, 00:02 IST
3,570 crore to the promoters who would be the 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 is 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 percent of the deal value. In the Vedanta-Cairn deal, the fee works out to be around 15 percent of the total size.
In Cairn India's $8.48 billion takeover by the NRI billionaire Anil Agarwal-led group, shareholders who will be missing out on this payment include state-run insurer LIC (which holds a 2.57 percent stake) and Malaysian energy major Petronas (14.94 percent).
As part of the deal, the promoters will get non-compete fees totaling around 6,000 crore. The non-promoter shareholders, with their over 71 crore shares amounting to a 37.64 percent equity, would have got 3,570 crore had the non-compete fees also been paid to them. Vedanta on Thursday announced a deal to acquire a majority stake of up to 60 percent in Cairn India, promoted by Edinburgh-based Cairn Energy with a 62.37 percent stake. Cairn Energy said it will sell a minimum of 40 percent and a maximum of 51 percent stake to Vedanta for a price of Rs 405 per share.
For other shareholders, Vedanta will make an open offer at 355 per share for up to 20 percent stake.
The price offered to the Cairn Energy includes a 50 per share non-compete premium for Cairn Energy 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 Sebi.
Source: PTI
