Fortis Board Backs Munjals And Burmans In Takeover Battle

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The board of Fortis Healthcare Ltd said it will recommend the offer proposed by the Munjal and the Burman family offices for the healthcare chain’s hospital and diagnostics businesses.

The recommendation of the board will be placed before the shareholders for approval, Fortis said in its filing to the stock exchanges. The board met on Thursday to consider all binding offers received by the company.

Sunil Munjal’s Hero Enterprise Investment Office and the Burman Family Office, which jointly own a minority stake in Fortis, have committed to invest Rs 1,800 crore in the Indian healthcare chain.

• Of this, Rs 800 crore will be infused through a preferential issue at Rs 167 a share
• The rest will be invested through warrants at Rs 176 a share, with Rs 250 crore of that coming upfront.
• Including the warrant subscription amount, their upfront investment would be Rs 1,050 crore without any due diligence.

This bid provided the most amount of certainty and liquidity, two things the company is in dire need of, said Brian Tempest, independent director of Fortis Healthcare. “The Manipal [Health Enterprises] deal was certainly not one of the favourites across the board,” he said, adding that Fortis’ management needs to focus on improving performance instead of “dealing with banks”.

The takeover battle for Fortis Healthcare started earlier in 2018, when founders Malvinder Singh and Shivinder Singh lost shareholding control due to mounting debt and after lenders invoked pledged shares. They then stepped down from the board amid allegations of siphoning funds. The fragmented shareholding of the company attracted five bidders in just over a month: TPG-backed Manipal Health Enterprises Pvt Ltd, Malaysia’s IHH Healthcare, KKR-backed Radiant Life Healthcare, Fosun International and the Munjal-Burman combine, whose revised bid was finally accepted.

The next stage is approval of the Competition Commission of India and shareholders before the funding comes in, Sunil Munjal told BloombergQuint. “This process should take less than 45 days.” The combined stake will go up from about three percent to just shy of 20 percent.

Munjal reiterated that Fortis just needs support in liquidity, “a calming touch to bring things to normal and a governance system which will allow it to get where it needs to.”

Amit Tandon, managing director of proxy advisory firm IiAS, doesn’t agree. “This [Munjal-Burman offer] wasn’t the obvious first offer to our minds nor was it the best bid financially,” he told BloombergQuint.

The weighted average price of the offer from the Munjals and Burmans comes to Rs 171-172 per share. The price offered by IHH is Rs 175. While TPG has been offering a slightly lower price, it’s the most absolute binding offer and the most detailed offer in every sense.

Amit Tandon, Managing Director At IiAS 

Tandon said the board could have followed a tighter bidding process for better price discovery. “It will be interesting to know how they [board] arrived at their decision.”

Both Manipal Health and IHH Healthcare said they were disappointed by the outcome of the bidding war.

“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,” Ranjan Pai, managing director and chief executive officer at Manipal Education and Medical Group, said. “It’s now for shareholders to decide whether they will accept the board’s recommendation.”

IHH Healthcare is evaluating options. “We believe we submitted the most compelling bid for the benefit of all Fortis stakeholders,” MD & CEO Tan See Leng said. “We are open to further discussions with all stakeholders, and look forward to the support of Fortis shareholders.”

In March, the Fortis board signed a binding agreement to spin off its hospital business and merge it with Manipal Health. Non-binding offers from the others followed.

In response, the board decided to consider only binding bids, prompting IHH Healthcare and Radiant Life to add binding elements to their offers. The Munjal and the Burman family offices, meanwhile, revised their offer into a fully binding one.

Their first joint bid was Rs 1,250 crore and it was subsequently revised higher to Rs 1,500 crore and finally to Rs 1,800 crore. They also recommended divesting Fortis’ stake in SRL Diagnostics to fund the buyout of Religare Healthcare Trust Ltd’s assets. If the SRL stake sale does not happen, the offer proposed a rights issue for acquisition of RHT stake.

“So far, we have seen SRL only from the outside and from whatever public information has been available,” Anand Burman said. “Once we get into the company and can look at SRL in a little bit more detail, then we will be a little bit more concrete in what we do.”

Separately, the Fortis board on 10 May also approved the appointment of Sabina Vaisoha and Rohit Bhasin as independent directors for five years starting 27 March and 19 April, respectively.

(This article was first published on BloombergQuint.)