Non-compete fee must be divided among all Max shareholders: Ican

Minority shareholders of the combined entity of HDFC Life Insurance and Max Life will vote on the non-compete fee of Rs 850 crore to promoters of the latter on Saturday. Non-compete fee is oppressive to minor shareholders, believes Anil Singhvi, Chairman of Ican Investment Advisors. Speaking to CNBC-TV18, Singhvi said that Rs 850 crore coming from the same coffer should be divided equally among the shareholders. The division of shareholders into minority and promoters is itself not correct. Merger of the two companies is suitable for shareholders of both the companies. The non-compete fee clause, which was added much later, is likely to be opposed by the institutional shareholders, he says. Below is the verbatim transcript of Anil Singhvi’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: How would you look at that non-compete clause, Association of Mutual Funds in India (Amfi) was also involved in telling mutual funds to take up the cause of the minority investors? Do you think this is a non-compete clause that will be opposed or will it go regardless?A: Let us put it in perspective. Max has already sent out a notice to shareholders for seeking the majority of the minority shareholders which is due on 24th. So, what is there behind this, let us examine this for a minute that there is HDFC Life and there is Max Life and they are coming together to become the largest life insurance company. So, it suits both sides of shareholders, which includes even the promoters of both sides.When you propose a merger, what you are seeking essentially is that you want to become a bigger force than what you have been. So, in this case HDFC Life was bigger than Max, HDFC Life with Max combined will become even bigger or the biggest on that. So, when you know for sure in a merger situation that you are proposing yourself, so it is an initiative taken by you to say that let us join our forces and lets become bigger.So, in this case you can’t differentiate two set of shareholders, one is a minority shareholder and one is a promoter and then in this case the promoter is then seeking Rs 850 crore for him to -- and this again is afterthought, this was not originally envisaged. After almost agreement was signed then this Rs 850 crore came in picture.I am not onto that van, it came into the picture but I am on the larger issue on that that when you propose a merger you are proposing a merger, the board is proposing a merger to become a much stronger company than what you have been. In that all set of shareholders have to be equal. You can’t have unequal among equals. So, what this Rs 850 crore is proposing to do is to have, according to me I would even go to the extent and send illegal enrichment but definitely it is immoral enrichment.You can’t have a situation carved out for yourself by saying that I should be getting non-compete. Non-compete can’t be there when you chose on your own will to become a larger player and your shareholding definitely will come down. So, it is not by way of act of god, it is act of man by which your own design, you are proposing, you know it very well when you propose a valuation that your shareholding will drop to whatever percentage it is, 6-7 percent what has come it to.The third thing which I find very bizarre in this case is that Anajit Singh was not a life insurance person. Today even if he wants to, if he wishes to, which he will not according to me and one can call this very clearly on that even if he wishes to compete with HDFC Life, the combined forces, life insurance business takes about 10 years. This non-compete is only for four years. In four years time you cannot setup such a big force for HDFC to feel very threatened that Analjit Singh can setup even after being a 7 percent shareholder in the combined entity, a very formidable insurance business so that we have write a cheque of Rs 850 crore to him and his family members so that we buy this piece with him that he will not compete with us. I would rather go and say lets compete. If Analjit Singh wants to compete even by becoming a 7 percent shareholder in the company, combined entity, let them compete.So, this Rs 850 crore according to me doesn’t stand on any leg, whether it is morality, whether it is legal, whether it is even from the business sense point of view and last point is that whom are we paying. Are these people capable and competent to compete? It was Mitsui Sumitomo who came along with Analjit Singh, we all know how insurance JVs in India are done, we didn’t have local players who understood insurance at all. This is an expertise which was given by the Japanese, if there is any reason for which it is to be paid is to the Japanese company.Anuj: What next from minority shareholders point of view and especially from institutional shareholders, what should they do?A: I think the writing is on wall. Latha used the word that privately they are opposing this, according to me it will be in public domain in two days time. Saturday is the voting which is e-voting and postal ballot and rightly so HDFC Life and Max, Max in this case has right now proposed to the minority shareholders should this Rs 850 crore be paid or not, so right now it is not for 391 and 394 so that resolution will come much later. Right now it is only resolution seeking minority shareholders approval for payment of Rs 850 crore. Rs 850 crore is coming from whom? It is not from the acquirer HDFC, it is coming from Max Life. So, it is really the money which is coming from the same corpus which should have gone to all minority shareholders.Sonia: What about the other issue, you said that a merger should make the company stronger, not weaker. The other deal with Ashok Leyland and Hinduja Foundries, acquiring or merging a loss making subsidiary is only going to make Ashok Leyland weaker in the near-term. What should minority shareholders do in such a case?A: According to me in India this is becoming an abuse and let me spell my mind out very clearly on that that acquisition is governed by Sebi and mergers are governed by the court and often we have seen in past the courts have really not gone in detailing of all the merger schemes. So long as it is approved by the shareholders and creditors courts have really not examined these in detail.So, according to me the time has come that if courts are really not paying much of attention on the merger schemes under 391 and 394, it is for the shareholders to stand up on their feet and say that these kind of schemes cannot just be thrown down their throat by the boards. I think more importantly I must tell you that the boards in India, the board of directors and particularly independent directors have fallen woefully short of what is expected out of fiduciary relationship they have with shareholders.In this case of Ashok Leyland everyone has written about it that Ashok Leyland’s, it is very dilutive and the fact that this company has been making such huge losses and you can’t say that because of my past losses I will get a income tax break and that is where I want to merge it, that is a very lame excuse to have a merger. They should have a business sense, it can’t be just for that tax. I would recommend the government to do away this tax. If this tax is becoming a problem for the minority shareholders, do away this tax break because you can’t use the tax break to short chain shareholders.