Shareholders of Fortis Healthcare Ltd. will vote today in an extraordinary general meeting called by two institutional investors to consider two resolutions: appoint three new independent directors and remove the four existing ones. The outcome will have a bearing on who takes over India’s second-largest hospital chain.
That’s because the four directors that East Bridge Capital Fund and Jupiter India Fund—12.04 percent owners of the company—want removed are among the five who on May 10 voted in favour of the offer by Sunil Munjal’s Hero Enterprises Investment Office and the Burman’s family office. Three of them—Sabina Vaisoha, Harpal Singh and Tejinder Singh— have already quit. So the EGM will decide the fate of the fourth—Brian Tempest.
The takeover battle for Fortis Healthcare follows the exit of founders Malvinder Singh and Shivinder Singh, who lost control of the hospital chain following allegations of siphoning money from the company. The company received bids from five suitors, with four revising their offers multiple times. Apart from the Munjal-Burman combine, other bidders include TPG-led Manipal Health Enterprises Pvt Ltd., Malaysia’s IHH Healthcare Berhad, Radiant Life Care Pvt Ltd. and Fosun Group.
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The Munjal-Burman bid was not accepted unanimously as three independent directors appointed recently voted against it. At least two other suitors consider themselves in the race. Manipal Health has again revised its offer and IHH Healthcare extended the validity of its bid till May 29.
Three independent directors voting against the offer suggests some large shareholders oppose the deal and the board’s recommendation may not get shareholder support, Saion Mukherjee, a pharma analyst at Nomura, wrote in a note. The brokerage said IHH Healthcare stood a better chance to convince investors of long-term value creation while chances of Manipal Health and Radiant Life Care are low.
“Over the next 12 months, we assess fair value range of Rs 103-151/share under Hero-Burman and Rs 150-191/share under IHH. We think there is a downside risk to the stock if the Hero offer goes through,” Mukherjee wrote. “If IHH succeeds, the stock will react positively in our view.”
IDFC Securities and ICICI Securities do not agree, suggesting that the Munjal-Burman offer was better.
“The bid is positive for Fortis shareholders in the sense that it leads to limited dilution with status quo largely prevailing on business side,” Nitin Agarwal, a pharma analyst at IDFC Securities, said. “Also, it will lead to a rather quick fund infusion as no upfront due diligence is required.”
Sriram Rathi of ICICI Securities expects the Hero-Burman offer to get shareholders’ approval, “considering relatively better valuation and lesser equity dilution”.
Eventually, other large shareholders like Yes Bank Ltd. may also have a say in which offer is finally selected.