A hospital ward can be a good place for a fight given the emergency attention that’s immediately available. It’s not clear whether that’s the case for Fortis Healthcare.
The Indian hospital operator’s board on Thursday recommended selling a minority stake to a pair of investors with little experience running such care facilities. Passed over were four other offers, including three led by corporate suitors and a full $1.3 billion takeover bid. And yet the directors were divided on the decision, and half of them may be gone before shareholders vote on the matter.
One obvious sign of concern is the market reaction. Shares of the operator of 31 hospitals across 10 cities fell almost 5% on Friday to ₹146, compared to the winning offer of ₹167 for nearly one fifth of Fortis. Motorcycle tycoon Sunil Munjal and Anand Burman, from consumer goods maker Dabur, together plan to invest $286 million through an allotment of preference shares and warrants.
Cash infusion
This deal, like the others, will inject much-needed cash into a troubled business subject to fraud investigations. It does not, however, provide an obvious long-term owner that can help Fortis thrive. Previous leaders, the Singh brothers, were booted out after lenders converted their debt into equity. Another problem is the Fortis board itself. Clearly doubting the quality of corporate governance, investors have called an extraordinary general meeting for May 22 to remove four directors, having already successfully installed three new independent members in recent weeks.
Bizarre possibility
Fortis expects existing members to be reappointed. If they are not, however, it could result in a bizarre situation where shareholders are voting on a transaction backed by a board that is no longer in place.
The turmoil leaves Fortis vulnerable. Rejected suitors could take an offer directly to shareholders, a move rarely seen in India. Malaysia’s IHH Healthcare, for one, said on Friday it looked forward to securing their support and was open to further discussions. Manipal Hospitals and TPG Capital would have to sweeten their ₹160 offer for a full takeover to have a shot. The bruises from this battle suggest there’s triage yet to perform.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
