As four bidders intensify the battle for Fortis Healthcare Ltd., it’s possible that the board of India’s second-largest hospital company “lacks the necessary wherewithal” to make a decision, according to a report by Institutional Investor Advisory Services.
Fortis Healthcare’s board needs an advisory committee which will be in a position to “discuss the issues threadbare, and arrive at a decision in everyone’s interest,” the report suggested. The board is meeting today to take a call on the bids.
Three of the four bidders—the Munjal and Burman families, Manipal Health Enterprise Pvt. and IHH Healthcare Bhd.—revised their initial offers. Fortis Healthcare also has a non-binding offer from Chinese conglomerate Fosun International Ltd. The offers came after founders Malvinder Singh and Shivinder Singh resigned from the board amid allegations of financial irregularities.
IiAS, among other things, suggested that the board should first identify which of the bidders are serious about the company.
For that, the report suggests:
- A vendor due diligence report that can be shared with the four bidders.
- To consider the feasibility of negotiating with Manipal Healthcare regarding simplifying their bid structure and getting all four bidders to bid outright.
- To ask all bidders to make a deposit of $5 million each into an escrow account, which can be paid to Manipal Healthcare if they enforce their binding contract.
The only risk in this strategy is that it might turn away its sole binding bid—that from Manipal Healthcare. “A bird in hand is surely more valuable than three non-binding offers.” The number of bids and their revision, however, have made it clear that Fortis Healthcare holds value. “The board needs to be brave to seize it wholeheartedly.”
The Revlon Moment
With four offers on the table, IiAS said, Fortis has entered what may well be described as its ‘Revlon moment.’ And while Indian regulations do not say so, Fortis’ board in the given circumstances may have no choice but to apply the ‘Revlon rule—a legal principle established in the U.S. that calls on the board must make reasonable effort to obtain the highest value for a company.
Applicable in hostile bids, the U.S. companies don’t enter into binding agreements. Still, in case of Fortis, it could maximise the value for shareholders.