The Hindu Business Line : Non-compete fee, almost 25% of offer price

Mumbai, June 25 Idea Cellular, which is buying 40.8 per cent stake in Spice Communications, will pay an additional Rs 544 crore to the promoters of Spice group as ‘non-compete fee’.

A section of analysts sees it as a way of paying a higher price to promoters. While the open offer price is Rs 77.30 per share, the price paid to promoters, including the ‘non-compete fee’, works out to Rs 96.62 per share.

Under the Securities and Exchange Board of India’s take-over regulations, a non-compete fee up to 25 per cent of the open offer price is permissible subject to the facts and circumstances of the case, said an expert. In this case, the non-compete fee works out to Rs 19.32 per share, just below the permissible limit of 25 per cent (24.99 per cent) of the offer price of Rs 77.30 per share agreed upon .

Non-compete fee is a price to buy out competition, but the shareholders always feel that it should not become the ruse for depriving them of fair value while benefiting the promoters.

Analysts say that the open offer price to Spice shareholders works to a return of close 68 per cent to the issue price in less than a year’s time. “ The issue price was Rs 46 per share and the scrip was listed on the bourses in July last year,” said Mr Salil Pitale, Head-Investment Banking(Telecom), Enam Securities Pvt Ltd.

Given the current bearish market, it is seen as a good return, the analysts said.