Sebi against non-compete fee payment to promoters in M&As

As part of a major overhaul of the takeover rules, market watchdog Sebi may consider abolishing payment of non-compete fees, which are paid by acquirers to the target company's promoters in lieu of a commitment for not entering the same business.

A high-level panel set up by Sebi to reform the Takeover Code is believed to have suggested that either the non-compete fee be totally done away with, or the beneficiaries of such payments be asked to share the fee with the non-promoter or public shareholders, sources said.

In M&As, a non-compete 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.

A final decision is expected soon by Sebi on the recommendations of the Committee on Takeover Code, which is headed by C Achuthan, former presiding officer of the Securities Appellate Tribunal.
    
The panel is believed to have recommended that either the acquirers stop paying such non-compete fees or give a share to the public too, sources said.
    
Market sources said the panel's recommendations are based on the premise that any takeover of a company gives the public shareholders a chance to share the total M&A value in terms of open offer made for their shareholding, but the promoters are the sole beneficiaries of non-compete fees.
    
While the promoters of the target company in any M&A deal get paid such fees in lieu of the expertise garnered by them in that particular business, the public shareholders also have a role to play in the growth of the company that is being acquired, they added.
    
The proposed changes are part of a major restructuring of the takeover regulations for listed companies and the suggestions also include asking the acquirers to make an offer for acquisition of the entire company.