Mumbai: The Tata group has agreed to pay the promoters of Mount Everest Mineral Water Ltd a non-compete fee of Rs3 crore, almost 2.4 times of the company’s net profit for 2006-07.
In return, Salim Govani, the managing director and promoter of Mount Everest, and his affiliates have agreed notto participate directly or indirectly in the business of manufacturing, bottling and selling—through imports or exports—of various kinds of water in India, or elsewhere, for one year from the termination of the shareholders’ agreement between them and the Tatas.
Tata Tea Ltd, the world’s second largest branded tea company, currently owns 24.15% of Everest Mineral. It could pick up another 20% through an open offer. Theoffer, being managed by investment bank DSP Merrill Lynch Ltd, is scheduled to open on 27 July as per documents filed with capital markets regulator, the Securities and Exchange Board of India (Sebi).
Tata Tea has already invested Rs71.39 crore in Mount Everest and is in the process of selling their stake in another water brand, Glaceau, to The Coca-Cola Co.
The Tatas have also agreed to grant an option to Foresight Holdings Pvt. Ltd, controlled by Govani and Vinod Sethi, a co-promoter of the company, to sell their shareholding in Mount Everest—aggregating to 22.5 lakh shares and 8.6 lakh shares, respectively—to Tata Tea at a guaranteed price of Rs140 per share (the open offer price) plus interest.
Sethi and Govani can exercise this option if the Tatas, who are assuming management control of the firm, are unable to boost its net sales eight-fold over the next five years, ending in March 2013, to Rs200 crore. Mount Everest earned revenues of Rs24.78 crore in 2006-07.
If the Tatas miss this target, then not only will they have to pay the duo the open offer price of Rs140 per share being offered to public shareholders now, but also compound interest at 10% per annum from the date of sale of 9.15% stake to Tata Tea.
The maximum price to be paid by Tata Tea to the promoters under this option has been capped at Rs250 a share, according to documents filed by the firm with Sebi.
If the Tatas decided to sell their stake in the Mount Everest or merge it with any other firm, then too Govani and Sethi will automatically be able to exercise this option even before the end of six years from 1 June 2007.