IHH Healthcare Berhad Revises Offer for Fortis Healthcare While Proxy Firm Questions the Process

There are at least two developments concerning Fortis Healthcare Ltd. The first is the revision of offer from IHH Healthcare Berhad after the target firm indicated that it would only consider binding offers. The second is in respect of IiAS, a proxy firm, questioning the board’s sale process. The latest development comes on the heels of Hero Enterprise Investment and the Burman Family extending its deadline to May 4.

Binding Offer

A Bloomberg Quint report indicated that IHH Healthcare presented a binding offer to inject Rs.650 crore. This will be done through a preferential issue at Rs.160 a share. However, this is subject to a condition that the target firm would give bidding firm immediate access to carry out due diligence. The bidder made it clear that the funds could be used only to settle dues to employees, debt servicing, and creditors. The fresh offer is much similar to the original bidding price of $1.3 billion or Rs.4,000 crores. However, the revised offer only split into two steps to meet eligibility criteria.

Apart from the binding offer, Asia’s biggest healthcare group also presented a non-binding offer of Rs.3,350 crore. This is also subject to due diligence completion. The bidder has given time until May 4 to respond to its offer. Once the deadline is over, the offer stands withdrawn. The latest developments failed to have any significant impact on the stock prices on Tuesday.

While the bidding process is going on, IiAS has also questioned the board’s authority in selecting the process to sell itself. Investors have sought higher independence to support objective decision-making at the board level. The proxy firm is worried about administering a full discovery price stating that this could be short-changed. Investors want the board to have a process that enables every possible bidder to bid though within a tight time-frame.

The proxy firm pointed out that the current board members have aligned with the Singh brothers or his group companies in the past.  Two institutional shareholders, Eastbridge Group and Jupiter Asset Management Limited, have sought the company to convene EGM. The two firms are holding 12.04 percent in Fortis and want to remove four board members. In their place, the proxy firm wanted three independent directors.

Price Is Not the Sole Consideration

Interestingly, IiAS indicated that pricing is not the only consideration pointing out that every bid differs in structure. While some bidders presented splitting of business, some others are keen to buy the entire firm. However, control of the board is one of the key factors.

Since the current promoters are holding less than one percent of equity, the board should take a call on the bidders that is best suited to have control. The proxy firm wants the board to avoid making any existential decisions until shareholders overhaul the current board in the upcoming EGM. This suggested an interesting tussle is in the cards.

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