The Securities and Appellate and Tribunal on Monday reserved its order in the matter relating to the open offer by auto component maker Federal-Mogul Goetze (FMG), the Indian arm of US-based MNC Federal Mogul. The acquirer of FMG has given an open offer price of ₹400 a share, SEBI has said it should be ₹608.46, while shareholders say according to Indian peer group valuation, the price should be ₹1,200 a share.

Tenneco’s $5.4-billion deal this year to acquire Federal-Mogul in the US triggered an open offer for the Indian subsidiary. Tenneco offered ₹400 a share to acquire 25 per cent stake in FMG. After investors complained of a low price being offered by Tenneco, SEBI, in its final observation letter in response to the draft letter on March 20, directed a revision of the offer price to ₹608.46.

Tenneco moved SAT against the SEBI directions and said its ₹400/share price was correct.

On Monday, a large mutual fund and individual shareholders told SAT that the open offer price, as directed by SEBI, was still low. The shareholders are depending on another recent similar open offer in the auto space involving Wabco wherein JP Morgan chose a valuation method that was favourable to Indian standards, the investor association involved in challenging Tenneco in SAT told BusinessLine .

Shareholders say, both FMGI and Wabco were ‘infrequently traded’ within the definition of the SEBI provisions, and hence, the valuation for the open offer had to be done under Regulation 8(4) of SEBI, Regulation 2011, which states than “in the event the open offer is incapable of being determined under any of the parameters specified in Sub-Regulation (3)... the open offer shall be the fair price of shares of the target company determined by the acquirer... taking into account valuation parameters including, book value, comparable trading multiples and such other parameters...”

Deloitte’s valuation method

JP Morgan has used the valuation of Deloitte Haskins & Sells, which arrived at price of ₹6,318 for Wabco India, which on reported earnings is # 30x EV/EBITDA and 7.9 times price-to-book. This is similar to the valuation of other MNCs in the sector. Deloitte has differentiated between the valuations at which the global deal happened between ZF AG and Wabco Holdings, where Wabco Holdings was valued at # 13x EV/EBITDA.

If the similar peer group valuation of MNCs in auto components space is used to value FMG, the open offer price works out to ₹1,200/share (using 30x EV/EBITDA on FY2018 EBITDA). Shareholders say that the valuation of the FMG open offer at ₹400 offered by its offer manager CKP Financial Consultants, used only the global deal valuation to derive the Indian open offer price. Tenecco was represented by Janak Dwarkadas and SEBI by Pradeep Sancheti at SAT.

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