Federal Mogul deal: What it means for Indian listed entity

Icahn Enterprises LP announced entrance into a definitive agreement to sell its indirect wholly-owned subsidiary Federal-Mogul LLC to Tenneco Inc. for $5.4 billion. Tenneco will also assume all debt of Federal-Mogul.

In connection with the sale, Tenneco announced its intention to separate the combined businesses into two independent, publicly traded companies through a tax-free spin-off to its stockholders that will establish an aftermarket and ride performance company and a powertrain technology company.

Sale is expected to close in the second half of 2018, subject to regulatory approvals, approval by Tenneco stockholders and other customary closing conditions. The separation anticipated to occur in the second half of 2019.

Why is it important for Indian listed Federal-Mogul Goetze (India) shareholders??

Change in ownership in parent “FMC” will trigger a mandatory open offer.

Federal-Mogul Goetze (India) was a joint venture with Anil Nanda and his associates. In May, 2006, Nanda family and associates exited their holding in FMGI. In December, 2007 and In July 2008, Federal-Mogul Corp. increased stake via rights issue.

FMGI is the market leader in India in pistons & piston rings. Only company in India with access to global technology and integrated manufacturing operations owing to strong parentage. The company has 45% market share, but it could get a boost once India migrate to BS-VI  norms.

Promoter holds 74.98% in the company while other large shareholders include reliance capital trustee holds 9.79% and LIC holds 2.03%.

Given that open offer has to be for 25% all the non-promoter shares tendered in will be accepted, provided that the open offer price is attractive.

At CMP, delisting would entail a payout of just Rs. 600 crore, which is minuscule in comparison to the multi billion dollar merged entity.

Indian listed Federal mogul trades at Federal Mogul Trades at EV/Ebitda of 12x, which is sharply lower than MNC peers such as Bosch, SKF India, Timken, Schaeffer, which trade at 22x to 30x EV/EBITDA.

The acquisition by Tenneco could be a great complimentary fit for Federal Moguls.

Tenneco is a global leader in designing, engineering and manufacturing clean air solutions for passenger cars, light trucks, commercial trucks, off-highway equipment and high horsepower engines used in marine, locomotive and stationary power applications.

Tenneco's commitment to clean air product leadership includes investing in the core sciences, including combustion and thermal management, materials science and thermo-electrical energy.

This advanced research enables the development of creative solutions that help to meet customers' current and future emissions control needs.