A medical assistant wears a stethoscope while working in an exam room. (Photographer: Andrew Harrer/Bloomberg)

Is The Fortis Board Focused On Value Maximisation?

A fifth bidder, Radiant Life Care Pvt. Ltd., joined the race for Fortis Hospitals Ltd. today but it has started at the losing end. Because the Fortis board has said it will evaluate only binding bids.

That narrows the field to offers made by Manipal Health Enterprise Pvt Ltd., and the Burman and Munjal combine. Malaysia’s IHH Healthcare Bhd and the Chinese conglomerate Fosun International have, along with Radiant, been left out in the cold. Even though all five bidders have offered similarly priced offers.

But in leaving them out has the board compromised its ability to maximise value for shareholders?

One key reason for why these bidders may not have made binding offers is the lack of an opportunity to do due diligence. Especially as the company’s auditor recently red flagged several inter-corporate deposits and outstanding vendor payments.

"They need to lay all their cards out on the table," said Amit Tandon, founder of proxy advisory firm IiAS. Arguing in favour of opening up the process to all bidders Tandon said Fortis Healthcare needs to prepare a vendor due diligence report and share it with bidders so as to allow for time-bound due diligence. The bidders will then be in a better position to value the assets and bid competitively.

"Opening this up to all bidders will not hurt the deal and the company in any fashion."

Mohit Burman, a shareholder of Fortis and a qualified bidder disagreed with Tandon. "The business needs money, ASAP," he told BloombergQuint, adding that five bidders will not increase the value of the company. "Allowing five companies to do due diligence will only harm the business" given that it is in urgent need of capital for functioning. Going through he company’s liabilities will take another one to two months, he added.

Interestingly the Burman-Munjal offer is focused on capital infusion and not acquisition of Fortis. Yesterday the combine presented a revised offer of Rs 1,500 crore of which Rs 750 crore will be invested upfront, without any due dilligence, to keep the hospitals running, according to a press statement.

Manipal’s offer proposes a takeover of Fortis whereby its hospitals business would be merged with Manipal. It’s offer values Fortis at Rs 156 per share, as does Fosun. IHH has proposed Rs 160 per share and Radient values the company at Rs 165 per share.

Apples And Oranges

Will the difference in approach between the two bidders who have made binding offers further complicate the job facing an external advisory committee appointed to assist Fortis board in evaluating bids?

It’s a complexity the board and advisory committee will have to deal with, Tandon said. “People compare apples with oranges all the time, the best example being rating agencies. They have to deal with this complexity.”

Burman said it was a choice between a simple offer and a complex one. “Our offer is to save the business, with a capital infusion in the company,” he said adding that anything complex will only take away value from the company’s true focus - its hospitals.