IHH looks set to have another shot at Fortis

KUALA LUMPUR: IHH Healthcare Bhd, which is likely to acquire a 34-35% stake in Fortis Healthcare Ltd, may have another shot at bidding for Fortis as the Indian firm has obtained permission to re-open the bidding process.
On Monday, it was reported that the Hero Enterprise Investment Office and Burman Family Office consortium allowed the re-opening of the bidding process amid shareholder concerns over the board’s choice.
According to a Reuters report, Fortis’ board said it received a letter from the Hero-Burman consortium acknowledging stakeholders’ preference for re-opening the bidding process.
However, Fortis had not yet made a decision on the matter.
Earlier this month, the Hero-Burman consortium won a five-way bidding war for Fortis with its offer to invest 18 billion rupees, despite higher offers from Manipal Hospitals Enterprises and IHH.
IHH’s bid for Fortis is at 175 rupees per share and a subsequent equity infusion at a per share price not more than 175 rupees. Last Friday, the group announced that it has extended the acceptance period for its offer until June 30.
“The first tranche of 650 crores of 175 rupees, that’s binding. It turns out to be about US$100 million (RM397.9 million) because we think the company needs that kind of working capital today. Then the second tranche of the 3,350 crores, that is subject to a due diligence. We have requested repeatedly for due diligence as we are first and foremost, accountable and answerable to our own shareholders in IHH,” said its managing director and CEO Dr Tan See Leng.
He said if the deal is accepted, it will exceed the 26% threshold and trigger a mandatory takeover offer, but based on IHH’s discussions with various minority shareholders, there is consensus that the minority shareholders would not exit if IHH’s deal is successful.
In 2011, the Securities and Exchange Board of India (SEBI) raised the trigger threshold for a mandatory takeover offer from 20% to 26%.
“They would like to ride with us. I think many of these minority shareholders are also shareholders of IHH stock. I think they have seen how we have performed, they have met us for many years and they would want to ride with us. Even though ideally we would like to have 51%, the reality is that we would probably end up with 34-35%. But at least we get to drive the company and in the board itself we would have a say,” he told reporters at IHH’s AGM on Monday.
On concerns over the alleged siphoning of some US$76 million out of the company by Fortis’ founders, Tan said investigations are still ongoing and the audited accounts have not been released to date.
“We are very carefully advised by our legal advisers, our financial advisers as well as our investment banking advisers on what are the next steps. I’m not at liberty to reveal at this particular point in time because I hope that some of those statements would come out at the board meeting on May 30,” he added.
“Let’s not speculate; 48 hours from now, there’s still quite a lot of changes that may happen,” he said, when asked if the investigation would cause IHH to change its offer for Fortis.
After voting in favour of Hero-Burman’s offer, three directors left Fortis’ board, while a fourth was voted out by shareholders last week. Fortis is expected to hold a board meeting tomorrow.
Tan said IHH’s strategy in India is to tap into the medical talent pool in India and despite the ongoing investigation, Fortis is attractive as 15 of its total chain of hospitals complement IHH’s strategy.
“If we are able to eventually win the asset, in the 12-15 month period, there’s still a lot of heavy lifting, I don’t deny that, but I think it gives us one shot at really completing on our Indian platform,” he said.