FMGIL’s Open Offer Gets SC nod

The decks are cleared for auto-component maker Federal-Mogul Goetze (India) to go ahead with its proposed open offer. On Monday, the company received a favorable order from the Supreme Court.

The apex court order disposes of the Appeal, upholding the valuation of the shares of FMGIL at Rs. 608.46, as directed by the Securities Exchange Board of India vide its communication bearing number (SEBI) on July 04, 2019, to the Merchant Banker.
The Order grants the partial relief to the FMGIL that it will be required to deposit in the escrow account only such amount as is required under Regulation 17 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

The company is reviewing the order and will evaluate the options available to it after examining the same after which the further course of action will be determined in relation to the Open Offer.
It has informed by CKP Financial Services Pvt. Ltd., Merchant Bankers to the Open Offer about the SC order, accordingly to initiate required steps.
Meanwhile, FMGIL’s share price has gained 5.46% over the past quarter. The stock has clocked in a change of 2.52% most recently for the past week.

Investors will find it difficult to digest the open offer price given the divergence in valuations and the perceived price of Rs 1,200 which they see as fair value.

Federal-Mogul Goetze (India) is largely in the manufacture, supply, and distribution of automotive components in India.

The company offers pistons; piston rings; cylinder liners; light metal castings, including cylinder blocks, cylinder heads for single-cylinder engines, and aluminum tube castings and crown handles for motorcycles; and sintered metal products comprising valve train parts, transmission parts, and lubrication pump parts, as well as other structural parts, such as timing pulleys, gears, and thrust plates.

Its products are used in various applications that include two/three-wheelers, cars, sports utility vehicles, tractors, light, and heavy commercial vehicles, stationary engines, and locomotive diesel engines. It also exports its products to various countries.

The company was formerly known as Goetze (India) Limited and changed its name to Federal-Mogul Goetze (India) Limited in June 2006.

While the company has got the SAT order in its favour for the open offer it remains to be seen as how successful this will be going ahead.

Earlier Tenneco, the acquirer of FMG, had earlier given an open offer price of ₹400 a share. SEBI decided it should be ₹608.46 based on a valuation report by Haribhakti and Company.

Some retail investors were of the view that the right valuation was around Rs ₹1,200 a share. In May, the Securities and Appellate Tribunal (SAT) had given FMG retail investors and Tenneco three weeks’ time to raise their objection with the SEBI.

The independent valuation report from a Category 1 merchant banker engaged by a large mutual fund had derived an open offer value of ₹820 a share for FMG

Two other reports of chartered accountants have derived a fair value of ₹920 and ₹1,150.

As per the latest shareholding as on Sept 2019, 75% of the equity of FMGIL is held by the foreign collaborator namely Federal-Mogul Holdings, and the rest 25% is held by Institutions and public shareholders.

Out of the 14% institutional holdings around 2% is with LIC and around 9,78% is with Reliance Nippon Mutual Fund and the rest with smaller funds.

As this offer is to acquire the entire 25% holding, it is quite likely that there could be an upward revision in the offer price going ahead.

This is exactly the reason the stock was up by 18% today wherein the current share price is Rs 660 and the offer price is Rs 608.46.

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