The takeover saga at one of India's leading healthcare chains Fortis Healthcare Ltd (FHL) reached a culmination with the board choosing the Hero Enterprises-Burman Family Office offer as the best for the beleaguered hospital and diagnostic chain.
FHL said in a statement to the BSE that "The Board, post having the detailed discussions on the pros and cons of each offer, decided by majority, to recommend the offer of Hero Enterprise Investment Office-Burman Family Office (the last offer made on May 1, 2018)." The recommendation of the Board would be placed before the shareholders for their approval.
Sources indicate that the board was divided amongst the newly appointed independent directors and the old ones and that the decision was not a unanimous one. "There were long deliberations over the matter and the recommendations suggested by the expert advisory committee (EAC). It was not a unanimous decision, the board was split," said someone close to the development.
Sunil Munjal, chairman of Hero Enterprises along with along with Dabur's Anand and Mohit Burman had sweetened their offer for Fortis on May 1, and had recently said that theirs was the easiest to implement offer. "Our offer is the fastest on time. We anticipate it will take 45-60 days while the other offers will take longer to implement. Moreover, our bid is unconditional and does not include any walk-away clauses unlike the others,” Sunil Munjal, Chairman of Hero Enterprise had said earlier this week.
In their latest offer, the Munjal-Burmans have offered to invest Rs 18 bn in FHL through a combination of preferential issue of equity and warrants. Their offer values Fortis at over Rs 90 bn, or roughly translates into Rs 172 per share. The duo have proposed an upfront infusion of Rs 10.5 billion directly into Fortis. The remaining investment of Rs 7.5 bn will be infused into the company over the next four months.
They have also sought three board seats in Fortis. Perhaps, the most significant part of their offer is that they have also proposed a strategic sale of the SRL Diagnostics after divesting FHL's stake in it.
It may noted here that a recent Edelweiss report had pointed out that SRL has grown at 14 per cent CAGR during 2011-12 to 2015-16, while its Ebitda margins improved from 10 per cent to 20 per cent during the period.
When asked about the Fortis board's decision, Ranjan Pai, managing director and chief executive officer of Manipal Health Enterprises Private Ltd (MHEPL) said that he was disappointed. "The board obviously felt that this is in best interest of the shareholders. However, this offer does not have any long term vision for FHL," he said.
Pai also added that TPG-Manipal would not be interested in acquiring SRL Diagnostics alone if Munjal-Burman backed FHL now wants to divest it. "We see value in Fortis Hospitals and SRL Diagnostics together. We are not interested in buying SRL Diagnostics alone," he added.
Earlier this week, Brain W Tempest, Harpal Singh, Sabina Vaisoha and Lt General Tejinder S Shergill, the four directors on the Fortis board had in an open letter to the shareholders urged them to take an informed decision while voting on the matter of their removal. Two minority shareholders of the company had sought the removal of these directors last month. Fortis has called for an extra ordinary general meeting (EGM) on May 22 to vote on the resolution of removal of these directors.
Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee, three new directors were appointed recently as proposed by the minority shareholders.
Bidding for Fortis closed on May 1. Apart from the Hero-Munjal duo, the Fortis board was considering offers from TPG-Manipal, KKR-Radiant Life Care and IHH Healthcare Bhd. Financial advisors Standard Chartered Bank and Arpwood Capital and legal advisors- Cyril Amarchand Mangaldas were appointed by the Board to advise on the matter.