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Reuters/Anindito Mukherjee
Shareholders will vote on the proposed board overhaul.
A TWO-FRONT BATTLE

Before Fortis can be sold, it must decide who will sell it

By Sriram Iyer

As the bidders’ battle for Fortis Healthcare, one of India’s largest hospital chains, rages, the internal fight for control between the board of directors and some minority shareholders has turned out to be a dead rubber.

The hospital chain operator, on the block since at least February, has scheduled an extraordinary general meeting today (May 22). On the agenda is the proposal to overthrow its last remaining director, Brian Tempest. Three other directors resigned a day before the meeting during which some investors are expected to seek an overhaul of the board before deciding on a buyer for the cash-strapped hospital.

Two foreign funds, Jupiter Asset Management and the Eastbridge Group, which together hold a 12.04% stake in the company, have sought to appoint three others—Suvalaxmi Chakraborty, Ravi Rajagopal, and Indrajit Banerjee—to the vacant seats.

The proposed overhaul is the biggest step before Fortis’s sale. Five suitors have lined up for the hospital chain valued at well over $1 billion. One of them, a consortium of business families, the Munjals and Burmans, has already been selected by the board.

The question now is if the existing board should have taken key decisions like whom to sell the company to.

The taint

Fortis was plunged into crisis in February this year after its then promoters, Malvinder Singh and Shivinder Singh, were accused of siphoning money to repay their personal debts. Even after brothers stepped down, investors feared that the remaining directors were operating at the ousted owners’ behest in the sale process.

The call against the existing directors found outside support, too. “…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.

“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 on May 02.

What next

Subsequent to the May 10 decision to sell the hospital to the Munjal-Burman consortium, at least one other suitor, the Manipal Group backed by TPG Asia, has sweetened its offer. Malaysia-based IHH Healthcare has extended the validity of its offer till May 29. Yes Bank, which owned about 15% stake in Fortis at the end of March, has reportedly asked the board to reconsider its decision.

Given that all but one of the incumbents have left the battleground, a review of the bids seems likely under a new set of directors.