Fortis battle may drag; TPG-Manipal, IHH await shareholder verdict

The takeover saga at Fortis Healthcare is far from over. A day after the Fortis board chose, after a 15-hour long deliberation, the fund infusion offer from the Hero Enterprise-Burman Family Office for the healthcare chain, other bidders in the fray have not laid down their weapons. 

The Manipal-TPG combine and Malaysia’s IHH Healthcare expressed their disappointment with the board’s choice, and indicated they would wait for the shareholders’ decision now. Meanwhile, Fortis Director Brian Tempest spoke to the media on Friday, explaining the rationale behind the board’s choice — ‘certainty of the offer and liquidity flowing into the company.’ 

It was unlikely to be smooth sailing for Sunil Munjal of Hero Enterprise and Anand and Mohit Burman of Dabur even after they received the board’s recommendation, because shareholders would try to extract value out of their investments, analysts said. They also ruled out the immediate possibility of a hostile takeover, because that would mean putting money upfront. 

Sunil Munjal, chairman of Hero Enterprise, sounded confident. “Why would shareholders reject the board decision? They want value for their investments, stability and growth for the company. If this drags for six months, the system collapses and no one gets anything,” he said. They have, in fact, reached out to large portfolio investors, and Munjal claimed the response had been encouraging. 
“We looked at all the binding bids from the view of certainty, risks and liquidity for the company. We evaluated four binding bids, and one that had the majority support was the winning one. They do not have those many hospitals and are not considerably experienced in healthcare. But they have several investments in healthcare and one hospital. They also provide training for nurses,” Tempest said. 

Five members of the Fortis board voted in favour of the Munjal-Burman offer. 

The erstwhile promoters of Fortis, Malvinder and Shivinder Singh, have resigned from the board of SRL, the diagnostic arm of Fortis Healthcare. “The Singh brothers have resigned from the SRL board and the documentation for this is going on. The new party, I am sure, would like to sit with the SRL management to understand the business better,” Tempest said. 

IHH Healthcare Managing Director and Chief Executive Officer Tan See Leng said they were evaluating all options and waiting for the shareholders' decision on the matter. Tan See Leng told Business Standard they had spoken to large portfolio investors after the board’s decision.  IHH had offered the highest bid for Fortis at Rs 175 per share, and a binding offer to infuse Rs 6.5 billion upfront without due diligence.  For the remaining Rs 33.5 billion, IHH has sought seven days of due diligence. 

“As good corporate citizens we have a duty towards our shareholders. That is why we have sought due diligence. We are not sure how a seven-day due diligence affects the deal,” Tan See Leng added.  He, however, clarified that IHH was not planning a hostile takeover at the moment.  

On the other hand, Ranjan Pai, managing director and chief executive officer of Manipal Health Enterprises Pvt Ltd, said they were involved in the process for long, and now they would wait for feedback from shareholders. The Manipal-TPG combine, however, is not trying to reach out to minority shareholders at the moment. 

“After many months of engagement with Fortis, including due diligence, we are disappointed that the board has come to this conclusion. Manipal remains of the view that our offer proposed the most appropriate short-and long-term plan for Fortis and was in the interests of all stakeholders. Our offer comprised a significant and necessary immediate investment, a clear strategic plan to fundamentally transform Fortis, as well as synergies from a combination with Manipal. It is now for the shareholders to decide whether they will accept the board’s recommendation," he said. 

Abhay Soi, chairman and managing director of Radiant Life Care, another bidder for Fortis’ assets along with private equity firm KKR, could not be reached for comments despite several attempts. 

Analysts feel the process of acquiring Fortis is far from over. "The Singh brothers are no longer the promoters. The directors on the board are being questioned because they were appointed by the Singh brothers. Shareholders can always challenge the board's decision since they will want to unlock maximum value," said Arun Kejriwal, director at KRIS Capital.

Kejriwal also pointed out that it was highly unlikely that any of the bidders would go directly to shareholders, and pick up a stake directly from the market. "This would mean putting money upfront. When you buy warrants the acquirer needs to pay only 25 per cent of the total proposed amount upfront, and is allowed around 18 months to pay the remaining 75 per cent," he said. 

The fate of Fortis hangs on the upcoming extra-ordinary general meeting on May 22, when the resolution for removal of four directors — Brain W Tempest, Harpal Singh, Sabina Vaisoha and Lt General Tejinder S Shergill — will be put to vote. East Bridge Capital and Jupiter India Fund, the minority shareholders of Fortis, had called for the removal of board members on the grounds that the board had failed to exercise its fiduciary duties towards shareholders, and had also failed to maintain expected levels of corporate governance. 

Kejriwal claimed that if the board was reconstituted, any decision taken by the erstwhile board could be challenged.

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