The Securities Appellate Tribunal (“SAT” or “Tribunal”), in the case of Tenneco Inc. v Securities & Exchange Board of India, Appeal No.352 of 2019, held that valuation of shares for the purpose of acquisition is not a precise science and though all the parameters are required to be considered, the weightage given to each of the parameters may depend upon the facts and circumstances of each case.

Facts– The issue in question here revolved around the valuation of shares of Federal-Mogul Goetz (India) Ltd (“Target Company”) by Tenneco Inc (“appellant”) who made an open offer to for acquisition of 25.02% in the target company. The Target Company’s 25.02% of the shares was therefore required to be valued for making an open offer under the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (“SAST Regulations”). The valuation of the shares were required to be made as per sub Regulation 8(2) (e) of the SAST Regulations which says that “where the shares are not frequently traded, the price is determined by the acquirer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies.” For this the appellant appointed two valuers who determined the fair value per share at Rs.372.10/- and Rs.397.66/- respectively. The appellant rounded up the value to Rs.400 per share as a fair price and public announcement was made. Thereafter, Securities Exchange Board of India (“SEBI”) appointed another Chartered Accountant (“CA”) for the valuation in accordance to powers conferred upon it by the virtue of Regulation 8(16) of the SAST Regulations. After considering the material, CA assessed the price at Rs.600 per share and a final value was fixed at Rs. 608.46 by SEBI. The appellant aggrieved by the decision challenged it in SAT. The prime contention was that the appellant had not been given any opportunity to make any observations before finalizing a value and therefore the appellant wanted an offer price of Rs. 400.

The tribunal held that the appellant should have been given the opportunity to examine the final value of share thus allowed the appeal. The case was remitted back to SEBI and the appellant was given a chance to raise objections to the valuation within three weeks from the date of the order. SEBI conducted a meeting with the appellants to explain the objection on the valuation report. However the appellants were still not satisfied and thus approached the tribunal.

Judgement– The tribunal dismissed the appeals and gave the following reasons-

  1. The valuation of shares of a Company is not a precise science. The conclusion arrived by expert valuer would be subjective and depend upon individual exercise. In these circumstances, it is difficult to have an indisputable single value.
  2. The Target Company is a going concern but its shares are infrequently traded. In these circumstances, sub Regulation 8(2) (e) of the SAST Regulation provides a guideline for valuation of the shares. The valuation has to be carried out by taking into account valuation parameters including (1) book value (2) comparable trading multiples and (3) such other parameters as are customary for valuation of shares of such companies. The fact that the appellant is not satisfied with the valuation does not render it incorrect. Thus the tribunal did not find any inconsistency in SEBI’s order and dismissed the appeals.


November 7th, 2019