In a major relief for the world's largest paper company, International Paper, and its Singapore-based subsidary, IP Holding Asia Singapore PTE, the Supreme Court on Wednesday set aside the sectoral tribunal's order that directed the companies to hike the open offer price to shareholders of Andhra Pradesh Paper Mills.
A bench headed by Justice Madan Lokur quashed the Securities Appellate Tribunal (SAT) order, holding that Sebi had no power to interfere with the payment of non-compete fee paid by the Singapore firm to the individual promoters of Andhra Pradesh Paper Mills.
The apex court accepted IP Holdings' plea that Sebi's finding that individual promoters were not eligible to be paid non-compete fee was misdirected as the two promoters, by virtue of being shareholders of the target and other corporate entities and associated with the management, had acquired considerable knowledge, and were therefore capable of competing with the business.
NYSE-listed International Paper and IP Holdings in March 2011 had acquired 53.46% stake by striking a deal with the promoters of Andhra Pradesh Paper Mills for around Rs 1,112 crore. Subsequently, it made an offer to the shareholders of the company as required under the law, but had paid non-compete fees selectively to the founders — the Bangur family.
The open offer was made at Rs 544.20 a share and the deal with the promoters was fixed at Rs 523 per share. The acquiring company also agreed to pay 25% as non-compete fee to the promoters of the Andhra Pradesh Paper Mills.
Sebi objected to this on grounds that certain categories of promoters were ineligible to receive the non-compete fee for want of expertise. The market regulator had asked the acquirers to hike the open offer price by around Rs 131 a share to Rs 674.93 per share, by including the non-compete fee as well. This directive was challenged by IP Holding Asia Singapore before the SAT, which dismissed its appeal last month.
SAT, while deciding the issue, held that non-compete fee cannot be paid to shareholders who do not pose any competitive threat to the company after exiting, even if such shareholders were part of, or related to, the promoter group.