The Hindu Business Line : SAT sets aside SEBI directive on Mysore Cements open offer

Mumbai, July 8 The Securities Appellate Tribunal has set aside the SEBI order which had directed German company Heidelberg Cement (represented by Cementrum IB.V) to pay the public shareholders of Mysore Cements Rs 72.50 per equity share in its open offer, instead of Rs 58 per equity share that it had paid.

Basically SEBI was asking that the non-compete fee paid by Cementrum to the promoters of Mysore Cements should be added to what was paid to the public shareholders, including interest for the delay.

Counsel for the appellant Cementrum argued against SEBI’s reasoning, that the SK Birla company Mysore Cements had been referred to the BIFR in 2004 as a sick company showing that the promoters did not possess the business acumen required to compete with the acquirers and were therefore not entitled to any non-compete fee.

The second reason provided was that the promoter sellers included a charitable and an educational organisation and such organisations can hardly be deserving of a non-compete fee.

SAT allowed the appeal noting that, “Our view is that the question of non-compete fee, whether it should be paid, and if so, how much, is primarily a matter to be decided by the acquirer and the target company in the facts and circumstances of each case.

"The only restraint placed by the Takeover Code on the matter is that the quantum of the fee cannot exceed 25 per cent of the offer price.”

Regulation 20 (8) of the Takeover Code says that any payment made to the persons other than the target company in respect of non-compete agreement in excess of 25 per cent of the offer price arrived at, shall be added to the offer price. SAT also said that the promoter sellers being members of the S K Birla group, with a long association with the company were definitely in a position to create competition for the target company.

The non-compete clause between the acquirer and the promoters also binds all affiliates of the promoter sellers, meaning the whole of the SK Birla group, not to compete with the target company.

The acquirer was entirely justified in negotiating the non-compete fee, noted SAT.

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