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Thursday, Oct 31, 2002

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SEBI directs new owners of Widia, FAG Bearings to make open offers

R.Y. Narayanan


THE Securities and Exchange Board of India (SEBI) has ordered the new owners of Widia India Ltd (WIL) and FAG Bearings India Ltd (FBIL) to make open offers to their Indian shareholders for acquisition of shares following the transfer of ownership of their (Indian companies') erstwhile parent companies abroad which provided them indirect control over the Indian operations.

In two separate orders, SEBI has turned down the requests of these companies seeking exemption from making open offers to the public shareholders in India for which they offered differing reasons.

Widia India was indirectly under the control of Milacron Metal Working Technologies Holding Gmbh through its subsidiaries Widia Gmbh and Meturit A.G. Meturit AG, which had 51 per cent state in Widia India Ltd, bought out its partner SAK Industries' stake in WIL, taking its total holding to 76.36 per cent in August this year.

Kennametal Inc from the US had entered into agreement with Milacron B.V. and Milacron Inc. for the acquisition of Milacron B.V.'s European operations, which would effectively offer it control over the Indian company WIL as part of its global transactions as Milacron Metal was a subsidiary of Milacron B.V.

Kennametal sought exemption from making the open offer to the Indian shareholders of WIL on the grounds that it would not be able to get the permission of Foreign Investment Promotion Board (FIPB) to make the public offer without a no objection certificate (NOC) from its existing Indian partner Mr. Yash Birla in the company Birla Kennametal Ltd. Mr Birla has turned down the requests from his US partner for the NOC.

Without the NOC, the US company felt that it would not be able to get the nod from FIPB and as such would not be able to purchase any share from the public through the open offer route. The company argued that any open offer would be a futile exercise as it would have to eventually withdraw it since the requisite approval from FIPB may not come.

It also feared that making such an open offer may create unfair expectations in the market and there may be artificial manipulation of stock price that would be harmful to its investors as the offer may have to be withdrawn at a later date due to non-consideration of the application by FIPB.

This plea was referred to the Takeover Panel on Aug 7, 2002.The panel however ruled that `on the overall consideration of the facts stated in the application and keeping in view the interest of 24% shareholders of Widia(India) Limited , the panel does not recommend grant of exemption as sought'.

The SEBI Chairman Mr. G.N. Bajpai, ordered the US company to make a public announcement of its intentions to acquire shares of the company as per regulations preceding the acquisition within 45 days of his order dated October 23. For calculation of offer price, May 3, 2002 should be considered as the reference date. He said since the maximum time period allowed for completing offer formalities from the date of public announcement was 120 days, the notional date of completion in this case was the latest by August 31 (since May 3 was the reference date). Since no such announcement was made, which has `adversely affected the interests of shareholders' of WIL, he directed the US company to pay interest at 10 per cent per annum to the shareholders for the loss of interest caused from August 31 till the date of actual payment of consideration for the shares to be tendered and accepted in the offer.

SEBI has also turned down the request of the new owner of the FAG Bearings India Ltd INA Group of Germany, which had acquired another German firm FAG Kugelfisher that had a 51 per cent stake in FBIL.

The new owner of FBIL stated, among others, that the assets and turnover of FBIL constituted an insignificant part of the FAG group and inheriting indirect control of FBIL was a fall-out of global acquisition of FAG group and there would be no change in the shareholding of FBIL. SEBI, rejecting the application for exemption, ordered the company to make open offer within 45 days of its order taking September 10, 2001 as the reference date for calculating the offer price. Further, the company was directed to pay 10 per cent interest per annum on the offer price to the shareholders for the loss of interest caused from January 9, 2002 till the date of actual payment.

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