By Sanjeev Sharma
The open offer for shareholders of Federal Mogul Goetze has reached the doors of the Securities and Appellate Tribunal (SAT) with the acquirer filing an appeal in response to the directive by the Securities and Exchange Board of India (Sebi) to hike the offer price.
Tenneco Inc is making the open offer for 25% shares of the Indian entity following its global acquisition of Federal Mogul. Sebi, in its final observation letter in response to the draft letter on March 20, directed a revision of the offer price to Rs 608.46 from Rs 400 mentioned in the open offer on March 20.
The acquirer company, through its merchant banker CKP Financial, filed an appeal on April 1 before SAT. “The determination of the next steps of the open offer will be subject to the proceedings before SAT,” the target company said in a filing.
In November 2018, Sebi had appointed Haribhakti & Co to undertake an independent fair valuation of the equity shares of Federal Mogul Goetze based on which the new price has been communicated.
Federal Mogul Goetze had said that the basis and the valuation methodology used to arrive at the revised offer price had not been provided in the communication by Sebi. “Therefore, neither the acquirer nor Federal-Mogul Goetze (India) has been granted an opportunity to review or verify the underlying methodology of any report or other analysis that was relied upon by Sebi in directing the acquirer to revise the offer price,” Federal Mogul Goetze said. It had sought details of the valuation from Sebi.
Shareholders of Federal Mogul Goetze had represented to Sebi on the open offer price, citing the fact that its shares are infrequently traded and the valuation needs to factor in that. In a note on the open offer last year, proxy advisory firm Stakeholders Empowerment Services (SES) had said: “In cases of open offers where shares are infrequently traded, regular formula of 60 trading days volume weighted average is not applicable under SAST Regulations. In fact, as it turns out in case of Federal Moghul Goetze, the market price doesn’t play any role in determining offer price.”
Commenting on the revised price communicated by Sebi, JN Gupta, managing director at SES, said: “I am happy at Sebi’s intervention in the matter, which is a step in right direction. This plugs the loophole that could have been used to deny minority investors their rightful dues,” he said.
“While I would still like Sebi to revise definition of infrequently traded shares so that need for Sebi’s intervention on case by case is avoided. A wide difference between valuation arrived at by a truly independent valuer appointed by Sebi vs value arrived at by company appointed valuer exposes the weakness of the system,” Gupta added.
SES had said in the advisory note that not only Federal, but 114 out of Top 1,000 companies fail to meet this benchmark and in case these companies were to make open offer, they will be able to make open offer at non-transparent price.