Fortis Healthcare board to decide on investment offers in April 19 meeting

The board of directors of Fortis Healthcare will meet on Thursday to decide on investment offers received by the hospital chain.

Fortis has received two binding offers — a revised offer from TPG-backed Manipal Health Enterprises and a joint bid by Hero Enterprise Investment Office and the Burman family office — and a non-binding offer from Malaysia’s IHH Healthcare Berhard.

While IHH said on Monday Fortis had declined to engage with it on a takeover offer, citing binding agreements with other parties, Fortis informed the stock exchanges in the evening that its board had not taken a decision yet.

IHH, the world’s second-largest healthcare group by market capitalisation, had placed a non-binding expression of interest before the Fortis board on April 11, in which it had valued the company at Rs 160 a share. The offer had come a day after TPG-Manipal tweaked its offer to Rs 155 a share to soothe investors’ concerns.

IHH had, however, said its offer was subject to “satisfactory completion of a limited due diligence”.

Fortis has, meanwhile, got a Rs 1.5 billion bridge loan from a non-banking financial company to run its operations smoothly till it finds a buyer.
In a press statement issued earlier on Monday, Fortis said, “Last week, Fortis received two binding offers — one is a revised offer from MHEPL and the second is a joint binding offer from Hero Enterprise Investment Office and the Burman family office —expressing interest in the company. In addition, the company has also received a non-binding expression of interest from IHH Healthcare Bhd.”

The board of directors would be meeting this week “to look at all eligible options and determine the future course of action that is in the best interests of the company, employees and shareholders”, it stated.

A source close to the developments said, “The board cannot really entertain non-binding bids at this stage, as that would drag the process further.
Also, the real value of the company is in RHT (which owns the infrastructure of Fortis Healthcare), and it is critical to buy back these assets. Payment to RHT is already delayed. The Singapore-listed RHT would prefer a buyer that would honour the agreement between Fortis and them.”


Status check
Mar 1, 2018: Fortis releases its Q2, Q3 results, delayed after its auditor red-flagged certain related party transactions worth around Rs 5 bn

Mar 28: Manipal Hospitals and Fortis announce merger of their hospital businesses, creating the largest provider of healthcare services in India by revenue

|Investors, shareholders express dissatisfaction over deal valuation

Apr 5: On an application moved by Daiichi Sankyo, the Delhi HC asks Fortis to file an affidavit

Apr 10: TPG-Manipal revises its offer, increasing it by 21%

Apr 11: Malaysia’s IHH Healthcare offers up to Rs 160 a share in a

non-binding bid, up from Manipal’s Rs 155 a share

Apr 12: Sunil Kant Munjal of Hero Enterprise and the Burman family office propose to invest Rs 12.50 bn in two tranches

In February, Fortis and RHT Health Trust had entered into a definitive agreement to acquire RHT’s assets for an enterprise value of Rs 46.5 billion, including debts of Rs 11.52 billion, five years after the hospital chain had spun off these assets to the business trust. RHT’s portfolio comprises two hospitals, 12 clinics and four upcoming clinics that are operated by its subsidiaries. All these companies (RHT’s subsidiaries) will become Fortis’ subsidiaries after the proposed acquisition is completed.

TPG-Manipal is working on extending the validity of its revised offer, which was placed before the Fortis board on April 10, according to sources. The April 10 offer was valid for seven days.

Ranjan Pai, managing director and chief executive officer of Manipal Hospitals Enterprises, said if the full capital did not come in at this point, it would lead to a long-term value erosion for Fortis’ investors.

“It is not a Rs 10-billion problem, it is a Rs 40-billion problem. Long-drawn-out negotiations may trigger the insolvency process for Fortis,” he said.
On April 12, Sunil Kant Munjal of Hero Enterprise and the Burman family office, which owns around a 3 per cent stake in Fortis Healthcare, had proposed to invest Rs 12.50 billion in two tranches to take care of the urgent financial needs of the company, which is said to have only Rs 700 million in cash.

Given the complex nature of the deal and probable delay in its closure, the Fortis stock was down 1.94 per cent to Rs 149 at the end of Monday’s trade.
Investor consultancy firm IiAS said, “To evaluate the bids, shareholders need more credence at the board-level: all four members of the current board have been associated with either the Fortis group, the Religare group, or Ranbaxy for long tenures in the past,” it said.

“The decision on which bid to accept cannot be driven by valuation alone. There are questions regarding subsequent control and the issues regarding the current promoters need to be dealt with,” IiAS said.


Fortis Healthcare board to decide on investment offers in April 19 meeting

In battle for control of Fortis Healthcare, it is advantage shareholders

The brewing war between Manipal Health Enterprises-TPG Capital combine and IHH Healthcare for control of Fortis Healthcare would be advantageous for Fortis’s shareholders as both parties are aggressively trying to raise their stakes in the company.
According to sources, both Manipal-TPG and IHH are eyeing a controlling stake in the company, which is likely to lead to two simultaneous open offers. Sources said both suitors would try to come up with premium offers to attract investors.
Lawyers said this was an example of a hostile takeover where both investors could make competitive open offers to reach a reasonable shareholding in the company. In such cases, a voluntary open offer is the way out for companies, wherein they will have to buy at least a 26 per cent stake in the company as part of the takeover code. A 26 per cent shareholding will automatically trigger the mandatory open offer for another 20 per cent of the company’s capital.
Both suitors are already in talks with existing institutional investors to acquire as much stake as possible after which they will make a voluntary open offer.
The last time such a bidding war took place was in the case of Kalindee Rail Nirman Engineers where Texmaco Rail and Jupiter Metal were locked in a battle for control. Texmaco managed to win control after Jupiter Metal bailed out. Interestingly, the premium for acquisition went as high as 40 per cent of the market price. In 2015, Deepak Fertilisers had made a hostile attempt to acquire Mangalore Chemicals & Fertilizers, but backed out after the acquisition cost became expensive when promoter Vijay Mallya and Saroj Poddar made a counter-offer.
“Investors will get a good deal in such a scenario as both parties are competing against each other to attract investors. However, the size of the open offer needs to be seen because if either party fails to gain control, it will have to continue in the company as an ordinary shareholder,” said an investment banker who did not wish to be named.
The shares of Fortis closed 0.91 per cent higher at Rs 160.2 per share on the BSE on Thursday. In the last month, the hospital chain’s shares have gained 16 per cent.
However, in terms of wresting control of the company, there could still be a stalemate due to the regulatory framework.

According to takeover regulations, an entity is said to be in control of a company when it has powers to appoint and remove the board of directors through an ordinary resolution. Such powers can be attained only when a company manages to own over a 50 per cent stake in the company. But in the case of Fortis, crossing the halfway mark looks challenging.
According to regulatory filings by Fortis, YES Bank and Axis Bank together own a 25 per cent stake in the company while mutual funds and foreign institutions own another 40 per cent stake. Retail investors own 7.1 per cent and the rest is distributed among high net worth individuals (HNIs) and corporate bodies.
Market investors Radhakishan Damani and Rakesh Jhunjhunwala together hold about a 1.5 per cent stake in Fortis Healthcare. Damani had picked up a 0.5 per cent stake in the company in January. Since the margin of difference is expected to be low, the role of Damani and Jhunjhunwala could be crucial. Also, many HNIs and retail investors are likely to follow in their footsteps.
Fortis has become a professionally managed company after YES Bank and Axis Bank revoked the shares pledged by its promoters. The Delhi High Court unencumbered assets of erstwhile promoters Malvinder and Shivinder Singh to execute the Rs 35 billion arbitral award that Daiichi Sankyo won in Singapore. As a result, these shares can now be transferred. Due to these legal contentions, the original promoters resigned from the Fortis board, which is likely to now culminate in a potential takeover war. An email sent to TPG Capital remained unanswered.

In battle for control of Fortis Healthcare, it is advantage shareholders

Why the billionaire Singh brothers could be entering endgame phase

Two meetings of the boards of directors this week, of Fortis Healthcare and Religare Enterprises, will be in the spotlight, given their promoters’ recent brush with legal and regulatory issues.
For the billionaire Singh brothers, Malvinder and Shivinder, former promoters of pharmaceutical major Ranbaxy Laboratories with substantial stakes in Fortis Healthcare and Religare, the legal woes are far from over.
Industry analysts and legal experts say this could mark the beginning of the endgame of the Ranbaxy saga, which began in 2008 when the promoters sold the family’s crown jewel to Japanese drug major Daiichi Sankyo.
ALSO READ: Sebi scanner on Fortis case after Singh brothers ‘take out’ Rs 4.73 billion
Nearly a decade after the deal, the Singh brothers’ business empire is now just a shadow of its past, with group companies struggling with large debts and poor profitability.
The group’s shrinking footprint is visible on the bourses, where there has been a steady decline in the stock prices and market capitalisation of the companies owned and promoted by them.
The combined market capitalisation of the companies promoted by the Singh brothers is now down to Rs 83 billion from nearly Rs 206 billion on the eve of the Ranbaxy sale .
Singh brothers Compiled by BS Research Bureau “Though struggling with regulatory issues, Ranbaxy remained a market leader. In contrast, none of their current businesses — Fortis Healthcare or Religare Enterprises — can be called a market leader by any yardstick,” said a business analyst.
In contrast, the Max Group, owned by their uncle Analjit Singh, is a multi-business conglomerate spread over financial services, health care, real estate and hospitality, among others. Though their promoters are related, the two groups have a frosty relationship, with an unwritten rule of not poaching on each other.
ALSO READ: Malvinder & Shivinder Singh took Rs 5 bn out of Fortis without board nod
Analysts say the Singh brothers failed to utilise the proceeds of the Ranbaxy divestment to scale up their health care and financial services businesses.
Singh brothers
The brothers had received nearly Rs 95 billion (nearly $2.4 billion at the exchange rate then) for their 34.8 per cent stake in Ranbaxy Laboratories.
The group’s listed companies reported combined net sales of Rs 95 billion in 2016-17, down from Rs 103 billion a year earlier and marginally up from Rs 89 billion when Ranbaxy was part of the group. This translates into less than one per cent annualised growth in group revenues during the period.
Their record on profits is even worse, with the group companies’ combined net profits down to Rs 1.7 billion in 2016-17 from Rs 7.7 billion in 2007-08.
In the same period, the group companies’ combined debt (on a gross basis) was up from Rs 76 billion in 2007-08 to Rs 171.5 billion at the end of 2016-17.
ALSO READ: Malvinder Singh and Shivinder Singh quit Fortis Healthcare board
There are currently three listed companies owned and promoted by the Singh brothers — Fortis Healthcare, Religare Enterprises and Fortis Malar Hospital. The latter is a subsidiary of Fortis Healthcare.
Initially there were expectations that group companies would see a rapid rise in revenues and profits as the promoters pumped additional capital into Fortis Healthcare and Religare Enterprises.
This triggered a rally in their stock prices after the Ranbaxy deal, but the company’s subsequent financial performance belied the Street’s expectations.
For example, Fortis Healthcare is now struggling to keep pace with its rival Apollo Hospitals after an initial ramp-up in revenues, thanks to a flurry of acquisitions in the initial years after the Ranbaxy deal. In the first five years since its listing in 2007, the company’s revenues jumped seven times and it went past Apollo Hospitals to become the country’s largest hospital company in terms of revenues in 2012-13.

It then hit a growth bump as the expansion had been largely financed through debt, which proved costly when the economic slowdown hit in 2012-13. This led to the company missing out on growth opportunities in the past four years, helping Apollo to get back to the top. Fortis has reported net losses in three out of the last five years.
The group’s financial services arm, Religare Enterprises, has shown a similar growth trajectory and is now struggling to remain profitable after a phase of rapid growth following its listing in 2007. The company’s revenues were down 27 per cent in 2016-17 and it has reported losses in four out of the last five years.
Industry analysts say the legal and regulatory woes of the Singh brothers are far from over. Amid allegations of siphoning off funds, the spotlight is now on the board of directors of Fortis Healthcare and Religare Enterprises. Amit Tandon, founder and managing director, Institutional Investor Advisory Services, a proxy advisory firm, said the board of directors of Fortis Healthcare should institute a forensic audit. “This will help them to come out independent of the promoters,” he said.
In another attack on corporate governance practices in Fortis Healthcare, another proxy advisory firm, Stakeholders Empowerment Services (SES), noted in a report titled “Fortis Healthcare: Fiefdom of Singh Brothers” that “the Indian ingenious mind could have discovered a way for avoiding Related Party Transaction approval. Do transaction with nondescript company and then buy the company, very simple”.
J N Gupta, managing director, SES, too, called for a thorough investigation of the affairs of both Fortis Healthcare and Religare Enterprises.

Why the billionaire Singh brothers could be entering endgame phase