Wall Street’s legendary activist-investor, Carl Icahn, has a reputation of investing in undervalued companies, later unlocking their value by either turning them around, or forcing the existing management to divest businesses or assets. Typically, the billionaire investor buys undervalued assets through his investment firm Icahn Enterprises and eventually sells them at a profit. Hence, it was not surprising to see Icahn selling his investment in the Michigan-based auto parts maker, Federal-Mogul, to Tenneco for $5.4 billion in April 2018. Icahn had first invested $1.1 billion in 2001 in the then-bankrupt Federal-Mogul through convertible bonds, and took it private last year.
The deal is a synergistic fit — while Federal-Mogul makes powertrain components such as pistons, ignition coils and spark plugs, Illinois-based Tenneco is a global leader in exhaust products. As of 2017, the combined entity, in which Icahn will hold more than 36% stake, clocked $13.67 billion in sales. The deal, which has received regulatory and shareholder approvals, is expected to be consummated on October 1. Interestingly, while Tenneco shareholders are happy about the win-win deal, minority shareholders of Federal-Mogul Goetze India (FMGI) are peeved. A look at how it all began reveals what has elicited such reaction.
Off the line
Goetze began operations in India in the 1950s, when Goetzwerke of Germany formed a joint venture with the Nandas of Escorts group. The company set up its first plant at Patiala, and started commercial production in 1957. In 1977, it established its second unit at Bangalore. Goetze went public in the same year and, incidentally, so did Reliance Industries. In 1998, Federal-Mogul bought out the German company and, in 2001, merged its then-Indian arm Federal-Mogul Sintered Products with Goetze-India. In 2006, when Anil Nanda sold his 24.64% stake to Federal-Mogul, the company acquired its present name as Federal-Mogul’s stake increased to over 50%.
What makes FMGI unique is that it is the biggest manufacturer of pistons, piston rings, sintered metal products and cylinder liners globally. Its clients in the country comprise prominent manufacturers of two-wheelers, cars, tractors, LCVs, HCVs, stationary engines and high output locomotive diesel engines. The Rs.13.62 billion company generates 7