Markets

Federal Mogul issue: Tenneco under SEBI lens

PALAK SHAH Mumbai | Updated on August 01, 2019 Published on August 01, 2019

Regulator’s probe centres around whether there was violation of the takeover code

SEBI is probing if Tenneco, the US-based auto parts major, violated takeover code regulations in the acquisition of Federal Mogul Goetze India (FMGI), sources in the know told BusinessLine.

SEBI has received complaints about Tenneco’s violation of Regulation 22 of Takeover Code 2011, which has stringent norms intended to protect the payouts to minority shareholders before the actual change in direct or indirect control of the target company. BusinessLine has seen the complaint letters.

It is alleged that FMGI has been indirectly controlled by Tenneco since October 2018. Federal Mogul USA indirectly held the shares of FMGI through a chain of subsidiaries. The global primary transaction of Tenneco to acquire Federal Mogul USA was concluded on October 1, 2018. This gave indirect control of FMGI to Tenneco in October 2018 itself and triggered SEBI’s takeover code, which specifies that any change in direct or indirect control of a company should be followed by an open offer. Not only this, Regulation 22 of the code specifies that money for the open offer should be deposited in an escrow account even before the procedures of the acquisition deal are completed.

Fails to deposit money in escrow a/c

Tenneco filed a detailed public statement to acquire control of FMGI on October 9 according to the requirement of Regulation 13(4) of Takeover Code but till date has failed to deposit any money for the open offer in the escrow account.

“The acquirer (Tenneco) has been in control of FMGI since October 2018 but till date the offer consideration has neither been paid to the shareholders nor deposited in an escrow account,” the complainants have told SEBI.

It was mandated by SEBI’s takeover committee that an agreement that attracts an open offer obligation may be acted upon during the pendency of the open offer provided 100 per cent of the consideration payable under the open offer is deposited in the escrow account. Moreover, an agreement that triggered an open offer obligation would have to be completed within 26 weeks after the offer period. In this manner, a transaction which triggers the open offer can be completed, the takeover committee had said in its recommendations that were accepted by SEBI.

In the case of FMGI, Tenneco has admittedly gained indirect control of the Indian company in October 2018.

“Tenneco has taken an open stand and sent a message to various investor protection forums that Regulation 22 pertaining to completion of the acquisition cannot apply to the instant transaction as the same is a case of indirect transaction. This implies that the shareholders of a target company are left vulnerable and unprotected in cases of indirect acquisitions.

This obviously cannot be the intent of the regulator and requires serious consideration. Such act of acquirer requires immediate response... so as to safeguard the minority shareholders of the target company,” one of the complaint letters said. Tenneco and SEBI did not respond to an email query from BusinessLine.

Published on August 01, 2019
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