As part of its review of takeover rules, market regulator Sebi is expected to lower the ceiling of non-compete fee a promoter is entitled to get from a buyer while selling the company. Sources said the limit is likely to be fixed at 15% of the negotiated selling price against the current 25%.

Sebi?s move to lower the ceiling of the non-compete fee is, however, not fully in line with the Takeover Regulations Advisory Committee?s (TRAC) recommendation that this should be totally abolished in the ?spirit of equal treatment for all shareholders?, especially minority shareholders.

TRAC had said that any additional compensation should be added to the negotiated price paid to all shareholders including promoter shareholders. The Sebi board is scheduled to discuss the TRAC report on June 27.

?Sebi will follow a middle path and offer promoters of target companies a small succour instead of stripping them of the major revenue chunk,? a Sebi official said. In 2009, Sebi had appointed a committee headed by C Achuthan, former presiding officer of Securities Appellate Tribunal, to review the takeover regulations. The committee submitted its report last July.

Finance ministry and Sebi, though, are likely to accept the TRAC suggestion to raise the open offer trigger limit to 25% from the current 15%. Currently, an entity picking up 15% stake in a target company is required to buy an extra 20% equity through an open offer to ordinary shareholders. The ministry is in favour of doubling this limit to 40%, against the 100% suggested by the TRAC. ?The government, as a stakeholder, has given its views on the takeover panel?s report. Sebi is planning to take it forward very quickly,? a senior ministry official said.

A non-compete fee, also known as control premium, is paid by the acquirer to the promoters of the target company for not conducting the same trade. Prevailing takeover rules require addition to the open offer price, of any amount paid towards non-compete fee in excess of 25% of the open offer price.

In order to protect the interests of minority shareholders and to prevent any scope for misuse of non-compete payments, the Achuthan panel had said that any consideration paid to selling shareholders should be added to the negotiated price for determining the open offer price.

AK Narayan, president, Tamil Nadu Investors? Association, and a member of the TRAC, maintained that the non-compete fee should be completely abolished in the interest of minority shareholders.

?We have always seen the promoters getting a higher price in the event of a takeover. This is extremely unfair to retail investors who too put their money at risk. They should be given the same price as the promoters. The committee had strongly recommended for scrapping the non-compete fee,? Narayan said.

The corporate sector, however, feels that non-compete terms constitute a distinct benefit that the selling shareholder is conferring to the acquirer ? which needs to be separately compensated for. While noting that control was only an incidental benefit arising out of share ownership, the Achuthan panel rejected all arguments for non-compete fees or control premiums.

?The regulator should clearly state the cap on non-compete fee, so that no confusion arises each time there?s an M&A as in the past. A 15% premium on the deal price stands a good chance to go down well with small shareholders,? said Srinivas Reddy, equity head, SPA Securities.

In the past, Sebi has objected in some cases to the payment of non-compete fees by the acquirers to the sellers. In 2006, Heidelberg bought stake in Mysore Cements, where Sebi said payment of non-compete fee to promoters was not justified, which was later turned down by SAT. Similarly, Tata Tea?s acquisition of shares in Mount Everest also ran into trouble after Sebi told the company to include the non-compete fee in the negotiated price.