Tribunal upholds SEBI's share price direction for FMGL acquisition, Tenneco's objections remitted for review

The Tribunal dismissed all appeals and upheld SEBI's direction for Tenneco to revise the offer price to Rs. 608.46 per share for the acquisition of shares of FMGL. Tenneco's objections regarding the appointment of Haribhakti as a valuer without prior opportunity were considered valid, leading to the case being remitted back to SEBI for reconsideration. The Tribunal found no fault in SEBI's valuation methodology, including the selection of comparable companies. Allegations of systematic oppression and non-compliance with escrow account regulations were deemed beyond the Tribunal's jurisdiction.

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Issues Involved:
1. Valuation of shares of Federal-Mogul Goetz (India) Ltd (FMGL).
2. Appointment of a third valuer by SEBI without giving an opportunity to the appellant.
3. Comparison of valuation methodologies and comparable companies.
4. Objections to the SEBI's acceptance of Haribhakti's valuation.
5. Allegations of systematic oppression of minority shareholders and mismanagement.
6. Compliance with Regulation 22 of the SAST Regulations regarding the escrow account.

Issue-wise Detailed Analysis:

1. Valuation of Shares of FMGL:
The central issue revolves around the valuation of shares of FMGL by Tenneco Inc. for an open offer acquisition of 25.02%. The shares of FMGL are infrequently traded, necessitating valuation as per sub-Regulation 8(2)(e) of the SAST Regulations, which includes parameters such as book value, comparable trading multiples, and customary valuation parameters. Tenneco appointed MSKA & Associates and J.D. Jhaveri & Associates, who valued the shares at Rs. 372.10 and Rs. 397.66 per share, respectively, rounding it to Rs. 400 per share. SEBI, however, appointed Haribhakti & Company LLP, which valued the shares at Rs. 600 per share, leading to SEBI directing Tenneco to revise the offer price to Rs. 608.46.

2. Appointment of Third Valuer by SEBI:
Tenneco contended that SEBI appointed Haribhakti without giving them an opportunity to present objections before accepting Haribhakti's valuation. The Tribunal previously held that SEBI should have provided the material basis for Haribhakti's valuation to Tenneco and allowed them to raise objections before revising the offer price. Consequently, the Tribunal remitted the case back to SEBI for reconsideration, allowing Tenneco and other appellants to make representations.

3. Comparison of Valuation Methodologies and Comparable Companies:
The valuation dispute also involved the selection of comparable companies. Haribhakti included Bosch and WABCO India, which Tenneco argued were not comparable due to different revenue streams. The Tribunal considered the arguments and previous judgments, noting that valuation is subjective and dependent on individual circumstances. The Tribunal found no defect in SEBI’s approach, which included considering the peer set data of Bosch and WABCO.

4. Objections to SEBI's Acceptance of Haribhakti's Valuation:
Tenneco argued that SEBI merely forwarded their objections to Haribhakti and copied Haribhakti's responses without independent consideration. However, the Tribunal rejected this argument, stating that Haribhakti had not provided a fresh response but relied on its earlier report. The Tribunal upheld SEBI’s decision, noting that the weightage given to each valuation parameter depends on the specific facts and circumstances of the case.

5. Allegations of Systematic Oppression and Mismanagement:
Appellant Bhavook Tripathi raised issues of systematic oppression of minority shareholders and mismanagement of FMGL. The Tribunal deemed these issues beyond its scope and jurisdiction, advising Tripathi to raise these concerns with SEBI separately.

6. Compliance with Regulation 22 of the SAST Regulations:
Bhavook Tripathi also claimed that Tenneco failed to deposit 100% of the open offer funds in an escrow account as required by Regulation 22 of the SAST Regulations. The Tribunal found this issue beyond the present appeal's scope, allowing Tripathi to raise it before SEBI for expeditious disposal.

Conclusion:
The Tribunal dismissed all appeals, including those of Tenneco and other appellants, upholding SEBI's direction to revise the offer price to Rs. 608.46 per share. The Tribunal directed Tenneco to deposit the total consideration towards the offer price in the escrow account within four weeks, adjusting for the amount already deposited, to complete the payment to shareholders who accepted the open offer.

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