INA (Germany), completing its acquisition of FAG Kugelfischer Georg Schaefer AG (Germany), must also acquire FAG Bearings India Ltd. The ruling was handed down recently by the Securities and Exchange Board of India (SEBI), and is an unexpected reversal for INA.

FAG Germany holds 51% of FAG Bearings India, a subsidiary which is publicly traded on India's stock exchange.

Under India's stock market regulations, when a parent company is acquired, it is often treated as a direct takeover of the Indian subsidiary. The acquiring company is required to buy an additional 20% of the shares of the Indian subsidiary within 120 days of the offer for the parent company. Since INA's takeover of FAG Germany was launched on September 10, 2001, INA had until January 9, 2002 to buy 20% more of FAG India on the open market.

However, rather than acquire that additional 20% share of FAG India, INA asked the SEBI to treat FAG India as an "independent takeover" -- meaning FAG India was so separate and distinct from FAG Germany that it should be treated as a different company. This would free INA from the obligation to acquire FAG India. When the exemption request was filed, it was widely expected to be granted without comment.

The SEBI not only rejected the exemption, but told INA it now has only 45 days to make an open market offer for that additional 20%. The SEBI then set the price INA must offer -- at what the share price for FAG India had been on September 10, 2001. Finally, the SEBI instructed INA it must now pay 10% interest from January 9, 2002, on top of the share price, for missing the 120 day acquisition window.

Effectively, then, INA has 45 days to launch an offer for an additional 20% of FAG India, priced at 100% of the September 10, 2001 closing price, plus 10% interest calculated from January 9, 2002.