Fortis deal: PEs East Bridge and Jupiter favour bid by Malaysia’s IHH

Private equity (PE) funds East Bridge Capital and Jupiter Asset Management, which together hold a 12.04 per cent stake in Fortis Healthcare Ltd (FHL), may oppose the Munjal-Burman combine bid for the hospital chain.

According to sources close to the PE funds, they favour the offer made by Malaysia’s IHH Healthcare, which put in the highest bid, at ₹175 a share.

“Both PEs have already expressed concern over the corporate governance practice of five FHL board members and even called an emergency meet to remove them. The key question is how these five board members, who accepted the Munjal-Burman bid, could take a decision on the bids even when their removal was being sought,” they said.

The PEs wanted Brian Tempest, Tejinder Shergill, Sabina Vaisoha and Harpal Singh removed from the FHL board. FHL has called for a extraordinary general meeting (EGM) on May 22, when the matter is likely to be taken up.

The source added that the PEsare curious to know YES Bank’s position on the offers made by different players. YES Bank holds around 15 per cent in FHL. The Singh brothers, the promoters of FHL, had pledged their holding with YES Bank and Axis Bank (which holds a 2 per cent stake in Fortis). Both lenders invoked the pledged shares this year.

An internal analysis of the bids for FHL, conducted by institutional shareholders, was reviewed by BusinessLine . The fact that IHH was ready to infuse ₹3,350 crore in just seven days after due diligence (DD), ₹650 crore of it upfront, and also make an open offer to shareholders were the aspects that influenced the institutional shareholders.

The Munjal-Burman bid commits an upfront equity plus warrant infusion of ₹1,050 crore without DD. But the institutional shareholders believe that the blended price of the Munjal-Burman bid is not even ₹172. “The warrants are such that they have an option to invest 75 per cent at a later date. The outer limit would be 18 months.

“Therefore, there is a benefit to the bidder from the warrant that must be netted from the ₹176 a share price. The effective price of warrants will drop to around ₹160-165 if the investment is made after 18 months. Even if they invest within six months, the blended price is less than ₹170. Also, Munjal-Burman were not offering any open offer,” the study by the institutional investors showed.

“It is surprising how a company built over many years is not ready to undergo just seven days of DD to get ₹3,350 crore and ₹650 crore immediate infusion, to accept a lower offer. A seven-day wait is much less than the drama that has been going on since March,” said JN Gupta, promoter, Shareholder Empowerment Services.

The source also said that the PE players may demand the details of decision-making process. On May 1, the IHH bid was uploaded on the website by the company at 11.03 am when the cut-off time was 12 pm. The Munjal-Burman bid, which had its warrant price higher by just ₹1, was uploaded at 12.10 pm.

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