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Luxury hospitals-India
Reuters/Anindito Mukherjee
There are more bidders than directors in the company.
WHO'S THE BOSS?

The bidding war for one of India’s top hospital chains could get ugly

By Sriram Iyer

In February 2018, hospital chain operator Fortis Healthcare’s reputation was wrecked after its promoters, Malvinder Singh and Shivinder Singh, were accused of siphoning funds from the company. Three months on, there are five bidders, more than the number of its directors, racing for the cash-strapped firm desperate to sell out.

With the deadline to submit bids ending on May 01, Fortis’s hospital chain is today valued at well over half-a-billion dollars. Still, it may be too soon for its shareholders to rejoice as questions on the “legitimacy of the board” remain unanswered.

“…all its current members have had past tenured relationships either with the Singh brothers, or with companies of the group,” an April 24  report (pdf) by research and advisory firm Institutional Investor Advisory Services (IiAS) said. IiAS now seeks to overhaul the board before deciding on whom to sell the hospital.

Two institutional shareholders, Jupiter Asset Management and Eastbridge Group, which together hold 12.04% stake in it, have asked the company to convene an extraordinary general meeting (EGM) to put to vote a proposal to remove the four existing board members, and appoint three independent directors instead, according to a filing (pdf) with the BSE.

“It makes an absolute mockery of the process as they are under the control of the two brothers.”

“How can you have a company where the two promoters have stepped down, but look at the directors—one is the father-in -law of the former promoter and the second one is Brian Tempest, who was a Ranbaxy employee for so many years. If these two people are going to decide as to how the process of sale will happen, that makes an absolute mockery of the process because they are under the control of the two brothers,” corporate and finance consultant Ajay Srivastava, managing director at Dimensions Consulting, told Quartz.

The bidding war

Despite all this, Fortis remains an attractive proposition going by the bidding war.

There are five contenders in the fray: Manipal Group (backed by global investment firm TPG), Malaysian peer IHH Healthcare Berhad, Chinese investor Fosun International, Mumbai-based hospital Radiant Life (backed by global private equity firm KKR), and a consortium of Indian business families—the Munjals of Hero Enterprise and Burmans who own Dabur.

“If you want to have a healthcare business in India, this is the fastest way to ramp up capacity. There is no way you can get a plot in the middle of Gurugram, for instance, or Mumbai or Mohali. Investors may take a while to get the money out of it. But for a strategic player, this is the last chance to acquire a sizeable capacity. The next chain is Apollo Hospitals, which is not up for sale,” Srivastava said.

Four of the five bidders have recently raised their offers. However, the current Fortis board has so far allowed due diligence for only one, the Manipal Group.

“The danger here is, should there be a pecuniary advantage given to the former promoters or directors, they can structure the deal in a manner to give it to one party favourably, and that’s the end of the transaction. Reversing it will be a long litigation. The question is, should it be allowed to happen in the first place?” Srivastava said.

“We may see another unprecedented event: an Indian class-action suit.”

The regulator, the Securities and Exchange Board of India (SEBI), is reportedly investigating the siphoning of funds by the Singh brothers. It also has the power to supersede the existing board, if necessary.

“They have abundant powers and I don’t know why they are not exercising it. It is also a case of public health and tomorrow something bad may happen at one of the hospitals because of a lack of supplies or some other issue. Then the government will, perhaps, wake up to say let’s do something,” Srivastava said.

IiAS, too, has argued that the true price discovery will occur only if more bidders are allowed to join the bidding. But it has also said that the “current board should avoid making existential decisions” for the company. “We have seen an unprecedented five bids coming in for an asset. If the board continues its current path, we may see another unprecedented event: an Indian class-action suit,” the IiAS report said.