NON-COMPETE FEES IN THE SPOTLIGHT
The voting for the merger between Max Financial and HDFC Life Insurance ended on Saturday. Minority shareholders, led by financial institutions, have protested against the non-compete fees that will be paid to Max promoters, led by Analjit Singh. They said it is against the interests of small investors. DEV CHATTERJEE takes a look at some prominent cases where non-compete fees have come in the picture:
Max India-HDFC Life Insurance
Analjit Singh, along with other promoters of Max Financial, will get ~850 crore as non-compete fees from the merged entity of Max Insurance and HDFC Life Insurance, despite owning a 6.5 per cent stake in the new entity. Minority shareholders say other investors would end up paying an existing shareholder non-compete fees when he isn’t even exiting the business is wrong and against the spirit of the law. Since HDFC Life has gone for a merger instead of takeover of Max Life Insurance, a case for non-compete fees was made. Mutual funds have promised to vote against the proposal. The results of the voting will come out next week.
United Spirits-Vijay Mallya
In February this year, United Spirits announced that it would pay its former promoter Vijay Mallya ~515 crore as part of an “agreement” for his exit from United Spirits. Despite finding that United Spirits' accounts were cooked, Diageo gave a clean chit to Mallya and he would have no personal liability in relation to the findings of the alleged financial irregularities. According to the agreement, Mallya will resign as chairman and non-executive director of United Spirits, as also from the boards of other United Spirits group companies. Market regulator Sebi is now investigating on what basis the non-compete fees were paid to Mallya, even as local banks are running from pillar to post to get back their funds. United Spirits is also under the scanner of the Enforcement Directorate for alleged money laundering.
Cairn-Vedanta
Sebi rejected a plan to pay ~6,000 crore as non-compete fees to the promoters of Cairn India when Vedanta took it over in 2010.