Author: Ekta Batra

Ekta Batra talks about continuing market uncertainty, Tata Motors, Jet Airways

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fortis EGM lasts 15 minutes; shareholder vote result expected soon

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Update, May 23: Fortis shareholders remove Brian Tempest from the board

The much awaited Fortis Healthcare extraordinary general meeting (EGM) at the Air Force Auditorium, Delhi, concluded on Tuesday with few sparks.

The meeting began at 10 AM and barely lasted for half an hour, with sparse attendance.

People present during the Fortis Healthcare management include the current chair of the board, Dr Brian Tempest, CEO Bhavdeep Singh, company secretary Rahul Ranjan amongst others.

It was a quieter than anticipated EGM primarily due to two reasons. Firstly, many shareholders including the prominent ones are likely to have cast their votes electronically, hence the low attendance.

Read also: Three directors quit Fortis Healthcare board amid takeover battle

And secondly, three of four directors, who were to be removed at this EGM, already resigned from their posts.

The EGM was called on behalf of the East Bridge Capital Fund and Jupiter India Fund, that hold around 12% in the company, to vote on two resolutions.

The first one was removing four existing directors and second one was ratifying three new directors recommended by East Bridge and Jupiter.

The four existing directors, who were to be voted off were Brian Tempest, Harpal Singh, Sabina Vaisoha and Lt. Gen Tejinder Singh Shergill.

Off these, Harpal Singh, Sabina Vaisoha and Lt. Gen Tejinder Singh Shergill, submitted their resignations on May 20, two days ahead of the EGM, citing personal reasons.

That leaves Brian Tempest, whose fate on the Fortis Healthcare board will be decided by tomorrow or day after, once the counting is completed, unless he resigns before the outcome.

The shareholders will also ratify the appointment of the three independent directors, Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee, recommended by the East Bridge and Jupiter.

While nobody can tell what the final outcome will be, one of the likely scenarios is Brian Tempest being asked to step down and the three new directors being ratified.

In that case, the board will then consist of four members, Suvalaxmi Chakraborty, Ravi Rajagopal, Indrajit Banerjee (recommended by East Bridge and Jupiter) and Rohit Bhasin (appointed on April 19, 2018).

Read also: The devotion of the Singh brothers of Fortis runs deep into their businesses

Only a minimum of three board members are needed, but questions of lack of board strength and maybe objectivity (since three members are appointed by one set of foreign institutional investors) could resurface. However, the most pressing question will be, whether the legitimacy of the Munjal-Burman bid chosen on May 10 still stands?

To recap, the decision of choosing Munjal-Burman’s bid was taken with a majority, but without a unanimous vote.

The point of contention was that off the eight members, the five who voted for Munjal-Burman, were the four old directors and new inductee Rohit Bhasin.

This decision raised questions of collusion and lack of governance. More so, three of the five directors, who voted for the Munjal-Burman bid have stepped down within two weeks of the decision and one might be on his way out.

On the other hand, despite the final decision being taken by the board, Manipal-TPG submitted a fresh bid with an offer at Rs 180 per share – the highest on the table currently.

Malaysia-based IHH Healthcare Berhard followed the suit and renewed their last offer of Rs 4,000 crore at Rs 175 per share with Rs 3,350 crore subject to due diligence to the May 29 as well.

Shareholders have noticed too. For example, Yes Bank that holds 15% stake in Fortis Healthcare has pressed on the board to consider all revised bids, in order to derive maximum value for the shareholders.

Read also: Yes Bank urges Fortis to consider revised or new bids

Governance experts said that given the current scenario, it’s likely that Fortis Healthcare could see another round of bids.

And this time, it could start by allowing bidders to conduct due diligence. Due diligence will provide a fair assessment of the assets and a more transparent bidding process as per experts, even if bidders might not like what they see.

But there are a few other things to track in Fortis healthcare in the next few days. How and by when will the Fortis board be strengthened? What happens to the SRL Diagnostics board? Will Harpal Singh and Tejinder Singh Shergill resign from there as well? When will the Q4 numbers be released? (No date intimated as yet).

And last, but certainly not the least, the street is keenly awaiting the Serious Fraud Investigation Office (SFIO) probe which is expected at the end of May.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The devotion of the Singh brothers of Fortis runs deep into their businesses

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Radha Soami Satsang Beas or RSSB spiritual organization really came to light in the last week of September 2015, when promoter and executive vice chairman of Fortis, Shivinder Singh decided to step down to serve the RSSB full time. He took up the position of non-Executive Vice Chariman at Fortis. His rationale was to give back to society.

Many of us furiously googled RSSB then. We wondered why the suave 40 year old  billionaire entrepreneur was joining a religious sect full time only to realise the relationship it has with the Singh brothers and group companies ran longer and deeper.

An interesting example of this was in Feb 2014, when Religare Health Trust or RHT announced the purchase of the Mohali hospital property from RSSB. The transaction was for Rs 270 crore or $43.2 million, which the RSSB sect would receive for it.

Interestingly, the current CEO, executive director and board member of RHT Holdings is Gurpreet Singh Dhillon. As per the RHT website, he also serves as a Director on the board of two wholly owned subsidiaries of RHT. He was appointed CEO of RHT holdings at the age of 29, in 2013.

So, it seems as though Gurpreet Singh was CEO when the Mohali hospital was bought from RSSB in 2014. While his capabilities include experience in asset management, investments and advisory in real estate, his direct connection with RSSB cannot be ignored.

Gurpreet Singh is one of the two sons of the spiritual head of the RSSB sect – Gurinder Singh Dhillon. The Singh brothers are the nephews of Gurinder Singh Dhillon, who took over from their grandfather Charan Singh in 1990. This makes Gurpreet Singh Dhillon the Singh brothers’ cousin.

But these curious business connections the Dhillon family has with the Singh brothers doesn’t end here.

The Fortis Malar website for example lists Balinder Singh Dhillon as the President of Fortis Healthcare. While he is not a part of Fortis or the group companies now, reports dating back to 2015 describe him as the RSSB link.

How so? Balinder Singh Dhillon is the RSSB sect head Gurinder Singh Dhillon’s real brother, hence the Singh brothers uncle.

Coming to Religare, the Dhillons’ connections seem to be well documented. For example, besides being the head of RHT holdings, Gurpreet Singh Dhillon was a significant shareholder in the financial firm Religare, along with his brother Gurukrit, and mother Shabnam Dhillon, the wife of Gurinder Singh Dhillon.

The shareholding pattern back in Dec 2007 indicates both Gurpreet Singh Dhillon and Gurkirat Singh Dhillon holding 8.2% each, increasing it to 10% in the next 1-2 years.

By September 2012 Gurpreet Singh Dhillon owned a 4.35% stake and Shabnam Dhillon held a 8.6% in Religare and Gurkirat’s name did not feature in the shareholding pattern.

While Gurinder Singh Dhillon’s stake was pared off by 2013, Shabnam Dhillon held a 8.5% stake till March 2017.

In 2014 Religare raised over $90 million or Rs 550 crore via preferential allotment to an arm of Standard Chartered and Bestest Developers, a company owned by the Dhillon family.

All this could mean nothing, experts say. But, it is curious as the same names or some connections come up repeatedly with Singh brothers and parties associated with it. And it might not be limited to just family.

Let us take Standard Chartered, for example. Besides the preferential allotment in Religare, Standard Chartered Private Equity had put in Rs 300 crore to buy shares in Fortis via foreign currency convertible bonds (FCCB), an open market and participation in an institutional placement program in 2013.

Interestingly, Standard Chartered was one of the first independent valuers chosen by the Fortis board to provide an opinion on the binding and non binding bids.

And some go as far to point out that Deepak Kapoor, who is part of the Expert Advisory Committee, or EAC, and Harpal Singh, current board member and relative of the Singh brothers are both part of the governing council of the non profit, Save the Children.

Again, this might be all the normal course of business with an arms length distance of functioning. For example, sources have indicated Gurpreet Singh, though he might be family, is independent in his duties of RHT Holdings, and also has an independent board to maintain checks and balances.

More recently, Shivinder Singh’s reports indicate he has written a letter to the board expressing his concern on how the bidding process was carried out.

But, experts can’t shake off the governance issues Fortis and Religare have faced. The latest being questions raised about how current board was divided in its vote for Munjal-Burman.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Strides Shasun: Why the stock has fallen nearly 40% in the past year

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Strides Shasun has had a tough year. The stock has corrected over 35% year to date, worrying shareholders and investors. While there is no clear cut reason for the underperformance, the following is a summation of some key concerns brought up investors and analysts about the company:

1)     Exiting branded generics in India

In November 2017 Strides Shaun announced its decision to sell its branded generic business in India to Eris Life for Rs 500 crore. The reason for the decision was to focus on international markets and reduce debt.

The business had sales of around Rs 180 crore and had 750 medical representatives. The company had a portfolio of more than 130 brands such as Vitamin B drug Renerve, iron deficiency drug Raricap and central nervous system drug Solus.

While paring debt is a positive outcome from the deal, analysts are worried it let go of a lucrative market for the company.  While India brands’ performance had been impacted by GST and demonitisation, it is letting go of a higher margin business that is also considered a good hedge against changing pricing trends in the US.

With this sale to Eris Life, Strides does not have a presence in India formulations anymore.

2)     Concerns over the Institutional Business 

The institutional business as of FY17 was around 16% of company’s sales. In this segment the company manufactures anti-viral, Hep C and malaria drugs for global procurement agencies and institutionally funded aid projects, such as, the United States President’s Emergency Plan for Aids (PEPFAR).

There is some concern about this business after Ajanta Pharma’s commentary. Post the fourth quarter, Ajanta said the Africa tender business erosion has been higher than anticipated.

This is due to sharp price erosion and shrinking sizes of tender. IPCA has re-entered the market as well which has resulted in Ajanta’s market share falling by 1-2%.

Hence the fear is the overall erosion in the tender business is higher than anticipated and is a negative read through for Strides.

 3)     Earnings pressured

The company has disappointed in the past few quarters. For example, margins in the three quarters of FY18 has been a key concern.

In Q1FY18 Margins were 10.4% compared to 17% the previous year. In Q2FY18 it recovered to 13.2%, but was lower versus 17.7% the same quarter previous year and in Q3FY18 it was 16.4% compared to 19.4% YoY.

While Q4 numbers are yet to be released, the street is hopeful of a recovery but headwinds such as US pricing pressure and institutional business declining continue.

Talking about earnings, analysts and investors have brought up lack of details as a concern as well.

The company does not provide a break up of its regulated markets – US, Australia with little information on details such as US pipeline. So while the US is expected to touch $40-45 by end FY18 in terms of a quarterly run-rate the street has little information beyond commentary to compare or extrapolate it.

4)     Too Much Restructuring?

Strides has been known to undertake multiple restructuring and M&A transactions. A few of the steps including exiting the low margin generic manufacturing business in Africa, selling off its India presence, demerging its API business into Salora Active Pharma.

While all this restructuring is likely to be positive for the long term structure, the street is concerned that too many mergers and acquisitions could make the company run the risk of losing core focus of the company.

The most recent is the company announcing the merger of its Australia business, Arrow, with Apotex.

While the Arrow-Apotex transaction will propel Strides to the top position in Australia, the street is still awaiting details on valuations to make its final decision on how lucrative the deal is.

 5) Promoter’s other business interests

Lastly, there are some concerns brought up on the promoter focus on the company. Arun Kumar is known to have investments across businesses.

Investors are concerned that Kumar’s focus might be diluted due to these other business interests. Kumar has been they key driver of the company’s strategy.

While it may not impact day to day functioning the fear remains that the lack of focus could impact fresh investments into the stock. However, it is important to note Arun Kumar has been reappointed as the Executive Chairman in FY19, from Non-Executive Chairman, and hence is expected to play a more active role.

While many of these concerns have been well known it could be a culmination of these factors that could be weighing the stock.

At this stage it is also important to point out the bullish case for Strides. Analysts are looking at the US business to touch $200 million worth of annualised sales by FY20.

It also has a fairly steady track record when it comes to regulatory inspections from the likes of the USFDA. The copmany has also grown to a solid presence in Australia.

Many consider the Arrow-Apotex deal to be directionally positive providing access to 60% of pharmacies in Australia on priority basis. Valuation wise, the stock is currently trading down 10 to 11 times the price to earnings ratio on an FY20 estimate.

Lastly, shareholders take confidence from the company’s past instance of rewarding shareholders. It paid a total dividend of Rs 605 per share, amounting to $655 million after the $1.7 billion sale of its injectable arm Agila to Mylan in 2013.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Stock in focus: Fortis Board recommends Munjal-Burman’s consortium offer; stock likely to rise

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Fortis board of directors decided to recommend the binding offer of the Burman-Munjal consortium late on Thursday, which is likely to keep the stock positive throughout the market session on Friday.

The stock price is likely to rise as the consortium kept sweetening their offer since they showed their interest in the healthcare firm in April. On April 12, the firm gave an unsolicited binding offer to invest Rs 1,250 crore via preferential allotment route.

UPDATE: Fortis stock fell about 2% in morning trade on the BSE

After seeing its competitors, the consortium revised their offer on April 19 to infuse Rs 1,500 crore and an upfront investment of Rs 750 crore with Rs 5 crore via preferential issue of shares and Rs  10 crore via preferential issue of warrants on the condition of seeking two board seats.

The offer has now finally settled for a total of Rs 1,800 crore with infusing Rs 1,050 crore upfront.

The deal will infuse Rs 800 crore through a preferential allotment of equity shares at Rs 167 per share and a preferential issue of warrants of Rs 1,000 crore at Rs 176 per share or as per SEBI ICDR guidelines whichever is higher.

The consortium-led by Sunil Kant Munjal of Hero Enterprise and the Burman family of Dabur submitted a binding bid to invest Rs 1,800 crore in Fortis with Rs 1,050 crore upfront. It also offered to divest diagnostic unit, SRL, through an independent valuation. They are planning to buy out RHT Holding using funds from SRL.

The consortium faced tough competition with Manipal, which kept revising their offer in order to win the race for the hospital chain.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Trump takes aim at drug prices but impact on Indian pharma may be minimal

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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American president Donald Trump is likely to finally deliver that much delayed speech on bringing down prescription drug prices in the US.

The speech will be watched with bated breath by pharma companies. High drug prices were a key issue that Trump addressed during his campaign in 2016.

Remember his famous quote in January 2017: “Pharma companies are getting away with murder.” It sent pharma stocks tumbling down.

While the drug regulator USFDA has been stepping on the gas to reduce generic prices in the US, little has been done by the Trump administration.

Hence, given that this speech would be the first by Trump on prescription drug prices and given his bold moves on other issues, the street is understandably nervous.

Close Watch On Prices

However, if reports hold true, pharma companies both in the US and India should not fret much.

Trump is likely to focus on bringing down drug prices in the US by raising prices of the US manufactured innovative or branded drugs sold in foreign countries, especially the developed ones.

To give you an idea, as of 2015, US spending on pharma was above $1,000 per person, or 30-190% higher than developed counterparts such as Australia, Canada, France, Germany and the UK, among others.

The governments of these countries employ some form of price controls. For example, the UK, which has some of the lowest drug prices among developed countries, runs a government program named National Health Service, or NHS.

The NHS provides free healthcare and hence is one of the world’s biggest buyers of medicines. Such purchasing capacity gives the country greater negotiating power with drug companies.

Trump doesn’t seem to like this. The view of the US administration is that American companies spend on R&D, create new drugs, which are then protected by patents, and sell at exorbitant costs in the US to cover their costs.

But that is not the case in other countries. Due to existing government policies, these countries access the same innovative, patent-protected drugs at cheaper prices. This limits US companies from investing further in R&D and crimps their ability to lower prices in the domestic market.

Further evidence of the Trump administration’s rumination on the subject is provided in a February 2018 report by the White House.

“United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations.

This indicates that our current policies are neither wise nor just. Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area,” the report says.

Though other issues might be highlighted, it seems most likely Trump’s will focus on correcting this long-existing anomaly.

While one cannot entirely rule out Trump focusing on bringing down prices of generic drugs, the fallout is expected to be mild or unlikely. Why? Because measures have already been undertaken to reduce generic prices and the impact is visible. Also, companies selling generic drugs in India and globally are hurting.

For example, Israel’s Teva, the largest manufacturer of generic drugs, is planning to slash its generic portfolio by 80% in the US and aggressively slash costs. Mylan of the US had its North American sales fall 19% due to declining sales of its key drug Epipen as well as price pressure.

Novartis’ Sandoz generic business is up for sale, with sales of the generic unit falling 18% year-on-year this past quarter.

Generic prices in the US have declined by an average of 30% in the past two years.

However, the extent of price reduction in a drug varies based on competition, with a fall of 5-10% in one drug to up to 80% in another. The reason is increased competition.

And the USFDA is taking measures to ensure generic competition increases. In 2017 for example, the USFDA approved a record number of generic drugs – 1,027 in total with over 800 final drug approvals. And analysts only expect this trend of increasing nods with shortening approval times to continue.

Indian Companies Should be Safe

So, net-net what is the impact on Indian companies if Trump sticks to prescription branded drugs sold at lower prices in mostly developed countries? Fortunately, not much.

Indian pharma companies such as Sun Pharma, Lupin, Dr Reddy’s and others have a dominant presence in the generic US market.

India comprises of 30% of the volume of the generic market in the US and 10% in value of the $70-80 billion US generic market.

Hence, while Indian companies should be innovating and creating prescription drugs, it could be fortunate that they are not in this case. Having said that, we are watching this space very closely for any rabbits from Trump’s hat.

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why the Singh brothers must step down immediately from SRL Diagnostics board

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On May 6, the Manipal-TPG submitted its final and revised bid for Fortis Healthcare. It was a five-page press release that outlined a new structure, but carried the same valuation as before.

The new structure has Manipal merging with Fortis at Rs 160 per share and doesn’t require a demerger of the hospital assets. It entails an upfront offer of Rs 2,100 crore via preferential allotment to address immediate liquidity concerns. Manipal-TPG had earlier proposed a demerger of Fortis’ hospital business, which it valued at Rs 6,322 crore.

Under the new structure, Manipal-TPG will not buy out the 5% of stake that Fortis owns in the diagnostic unit, SRL Diagnostics, as it had proposed earlier. The consortium had earlier offered to buy out 31% stake of the private equity investors. The valuation of SRL stands at Rs 3,600 crore.

Fortis owns 57% of SRL.

While that is on the deal, what caught my eye was paragraph 2.2 on page 3 of the press release. Manipal-TPG mentioned that after it acquires the PE stake in SRL, a new shareholders agreement will be entered into between Fortis, SRL and Manipal.

Manipal-TPG  said ‘the board of directors of SRL (SRL Board) will be restructured so that no member of the promoter group of FHL (Fortis) is part of the SRL Board’. This statement is a new addition to the earlier Manipal-TPG bids.

While this addition has to do with the new structure proposed,  Manipal-TPG is also safeguarding themselves, said people familiar with the matter. In other words, it means the consortium wanted to ensure that the former promoters of Fortis — the Singh brothers — are not associated with the SRL board.

While much of the attention has gone to Fortis, little focus has been given to the granular details such as the board composition of SRL Diagnostics. The Singh brothers, who have stepped down from the Fortis board, continue to be a part of the SRL Diagnostics board and in fact, continue to control it, said sources.

Malvinder Singh is the executive chairman and Shivinder Singh is the co-chair of SRL Diagnostics, according to the SRL website.

Issues Related to Governance

Governance experts are questioning this arrangement. SRL Diagnostics is a material subsidiary of the Fortis. More importantly, the diagnostics unit is part of the merger and acquisition transactions related to the hospital operator.

Hence, the question governance experts are asking is why are the Singh brothers still in control of a material subsidiary of Fortis that is also an active part of the transactions. There has not been any explicit disclosure of them continuing on the SRL board.

Experts say it is a clear governance issue and governance reflects in one’s behaviour. Hence, in light of issues such as the litigation with Daiichi, the Japanese company which acquired the pharma company Ranbaxy from the Singh brothers, probe on possible siphoning of funds from Fortis, and delay in earnings due to lack of audit reports, the Singh brothers should have stepped down from the SRL board.

Besides governance, there is a growing fear that the lack of distance could risk entangling the assets in the legal hassles with Daiichi. By stepping down, the Singh brothers would distance themselves from the functioning of SRL Diagnostics and improve governance standards.

The question also arises on the rest of the SRL board and when it necessary steps be taken to restructure it. The board currently comprises eight members, with two members stepping down in March.

The current board members include associates of the promoters such as Lt General Tejinder Singh Shergill, Brian Tempest and Harpal Singh (all three were asked to be removed by investors Eastbridge and Jupiter from the Fortis board). Other members of the SRL board include Srinivas Chidamabaram of Jacob Ballas, Praneet Singh of True North and Meenu Handa.

It is important to note that some experts have brought up the fact that there are private equity representatives on the SRL board and hence will be more independently run. It is also possible that other board members might have asked the Singh brothers to step down.

But as of now, it has not happened – and that means the Singh brothers continue to control the SRL board.  ​

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

All that you need to know about the fierce takeover battle of Fortis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Fortis Healthcare has become a lodestar of a frenzied takeover battle, with five entities bidding for the cash-strapped hospital operator.

The Fortis board set up an expert advisory committee, comprising Deepak Kapoor and Lalit Bhasin, to evaluate the bids by these entities that are jostling to buy a significant stake or acquire the company.  The board will meet on May 10 to decide on the advisory panel’s recommendations on the binding bids.

The deadline for submitting the final bids was May 1. The Manipal Hospitals-TPG consortium, one of the first bidders for the hospital, was exempted from the deadline and has until May 6 to match any new bids received until May 1.

Until May 1, the board received four binding bids from Manipal-TPG, businessmen Sunil Munjal and Anand Burman, IHH Healthcare of Malaysia and Radiant Life Care, backed by buyout company KKR. China’s Fosun International submitted a non-binding bid.

While the decision of the board will be depend on the best value and easiest structure, analysts are not ruling out it factoring in a key metric – experience of the bidder.

Here is what you need to know about Fortis and the bidders.

The Target: Fortis Healthcare

Gurugram-based Fortis Healthcare owns 34 hospitals and medical facilities across 10 states with a total of 4,445 beds. Fortis owns 29.8% stake in RHT Health Trust (RHT), the Singapore-listed entity that owns assets in 12 of the hospitals that Fortis operates. Fortis also owns 56.6% stake in SRL Diagnostics.

The combined revenue as of the third quarter of 2017-18 was Rs 3,727 crore with EBITDA margins of 6.4% and net debt of Rs 1,300 crore. Occupancy is at 72% and the average revenue per bed stands at Rs 1.4 crore.

Manipal-TPG: Early Mover

Manipal Hospitals, backed by private equity giant TPG, was one of the earliest bidders for Fortis. Manipal-TPG was forced to revise its binding bid after facing a storm of protests by shareholders. It is now proposing an open offer to public shareholders for buying 26% in the hospital business. The open offer price is Rs 121 per share.

In its revised offer, Manipal-TPG has raised the hospital valuation to Rs 6,322 crore against the previous Rs 6,061 crore. It also offered an immediate infusion of Rs 750 crore and also proposed to buy 5% stake in SRL from Fortis.

Manipal Hospitals, led by Rajan Pai, launched operations in the early 1990s. It is not listed and currently operates 11 hospitals with a total of 6,373 beds. Of these beds, Manipal owns a total of 2,973 beds and manages 3,400 beds. The group has added 1,100 beds in the past 18 months.

TPG owns 22% stake in Manipal whose majority of hospitals are in South India. Currently, Manipal has 45% occupancy, with 63% occupancy in older hospitals.

Revenue stands at Rs 1,500 crore, with margins at 15-16%, including the new hospitals.

TPG also has interests in other hospitals. It has invested Rs 220 crore in mother and child-care hospital chain Motherhood in 2016, and has a majority stake in Cancer Treatment Services International.

If Manipal-TPG acquires Fortis, the consortium will become a pan-India player with a strong presence in Bengaluru (1,600 beds) and the National Capital Region (1,900 beds).

The operational beds will rise to 6,567, with bed capacity rising to 7,658 with a total of 45 hospitals.

The Manipal-Fortis combine will become the No.2 hospital operator in India after Apollo Hospitals, which has 9,400 beds at 49 hospitals. The group’s consolidated revenue will jump to Rs 5,230 crore with margins of 14.2%.  Through SRL Diagnostics, Manipal will enter diagnostics also.

Munjal-Burman: The Family Consortium

The consortium-led by Sunil Kant Munjal of Hero Enterprise and the Burman family of Dabur submitted a binding bid to invest Rs 1,800 crore in Fortis with Rs 1,050 crore upfront. It also offered to divest SRL through an independent valuation. They are planning to buy out RHT Holding using funds from SRL.

Munjal is the head of Dayanand Medical College and Hospital in Punjab with 1326 beds, off which 800 are teaching beds.

The Burman family was earlier the promoter of Dabur Pharma, a company focused on oncology products. The family exited the company in 2008 by selling its 65% stake to Germany’s Fresnius Kabi for Rs 775 crore.

The total deal size for 73% stake in Dabur Pharma was Rs 872 crore. The Burman family currently runs a venture named HealthCare at Home. It is a joint venture with the UK-based HealthCare at Home and is backed by private equity firm Quadria Capital.

HealthCare at Home provides healthcare services at home for patients. This includes elderly care, physiotherapy, nursing and ICU facilities, among other services. The venture is targeting revenue of Rs 1,000 crore by 2019-20. The company is also planning to hire 4,500 employees to its current workforce of 1,300-1,500 by the end of 2018-19.

The company is present in around 40 cities in India. The Burmans are also present in diagnostics with a venture named Onquest, which has over 33 labs with over 200 collection centres. Anand Burman is also the co-founder of Asian Healthcare Fund that has investments in dental chain company Sabka Dentist and primary healthcare clinic Healthspring.

IHH Healthcare: The Singapore Connection

Malaysia-based IHH Healthcare has offered a binding bid of Rs 650 crore at Rs 175 per share for Fortis. Its offer to infuse Rs 3,350 crore at up to Rs 175 per share is subject to due diligence.

Listed in Malaysia and Singapore, IHH is owned by Malaysian sovereign wealth fund Khazanah. It runs a total of 28 hospitals with more than 10,000 beds and is present in nine countries.

IHH, which recently began listing India as a target market along with Malaysia, Singapore and Turkey, has six hospitals and three medical centres in India. In 2015, the company entered the Indian market on a standalone basis after acquiring 73.4% stake in Global Hospitals and majority stake in Continental Hospital.

Prior to that, IHH held 10.8% stake in Apollo Hospitals, but sold it in 2017 for nearly 2,000 crore. The sale translated to a 2.5x gain from its initial investment in 2011.

The company has now consolidated its operations under the Gleneages brand in India. As of 2017, the company has 1,192 operational beds in India, with occupancy rates of 63% up from 56% the previous year.

In 2017, IHH’s acquisitions in India turned EBITDA positive. The company’s latest quarterly numbers show that India operations grew 3.9%, with inpatient admissions growing 15.4%.

If IHH manages to add Fortis to its kitty, the total hospital and medical centre count will increase to 43 facilities, with over 5,500 operational beds. IHH, however, has run into a few hassles in India, especially the opposition by the owners of Continental Hospital to a rights issue that it proposed.

Radiant-KKR: The Other PE-Backed Bidder

Mumbai-based Radiant Life Care, backed by buyout firm KKR, entered the fray as the fifth bidder. It proposed a binding bid to buy Fortis’s Mulund Hospital at a value of Rs 1,200 crore.

Radiant is promoted by Abhay Soi.

The company is looking to refurbish its hospitals business. It undertook redevelopment of the 650-bed BLK Super Speciality Hospital in New Delhi in 2010 and the 350-bed Nanavati Hospital in Mumbai in 2014.

The bed capacity of both the hospitals has since expanded – 1,600 capacity for BLK and 1,000 hospital for Nanavati.

In 2017, private equity firm KKR bought a 49% stake in the company by investing 1,288 crore. KKR has also invested Rs 550 crore in Apollo Hospitals’ holding firm and provided debt funding of Rs 560 crore to promoters of diagnostic company Metropolis.

Fosun International: The Chinese Bidder

Of the five companies, China-based Fosun International is the only company that offered a non-binding bid.

The company offered, $350 million, or Rs 23,38 crore, for 25% of Fortis with an immediate infusion of Rs 100 crore.

Founded in 1992 in Shanghai, Fosun International was listed on the Main Board of the Hong Kong Stock Exchange in 2007. It has interests across industries ranging from pharma, health to fashion and financial services.

Fosun has stakes in over 10 healthcare related firms worldwide.In India, Fosun has picked up 74% stake in Indian pharma company Gland Pharma for $1.1 billion. Fosun does not have any presence in Indian healthcare providers.

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Fortis looks to ramp up board, but old issues remain

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The board of hospital operator Fortis Healthcare assembled on April 26 for a two-day meeting to decide on the four binding bids it received. But there was little action on that front because Renuka Ramnath who was a part of the expert panel committee stepped down a day earlier.

However, the board did decide one matter. It invited the three individuals nominated or recommended by Jupiter India Fund and East Bridge to come on board. The two FIIs, which hold 12% stake in Fortis, had on April 18 asked for an extraordinary general meeting to appoint their three new nominees to the board and ask for the removal of current board members.

Here are the three new inductees recommended by Jupiter and East Bridge:

Suvalaxmi Chakraborty:

Held positions in ICICI and ICICI Bank.

Director of Magma HDI General Insurance, Caspian Impact, Espandere Advisors and RGVN Microfin.

Advisor to Fullerton India Credit Company, a subsidiary of Singapore’s Temasek Holding.

 Ravi Rajagopal:

Chairman of JM Financial, Singapore.

Independent director of audit committee of Vedanta.

Previous positions include head of finance and commercial at Ranbaxy in 1995-96.

Indrajit Banerjee:

Senior roles in Ranbaxy, Cairn India, Lupin and Indal.

President, CFO, member of executive committee at Ranbaxy between 2011 and 2015.

The move to induct new board members is welcome. With these inductees, the board strength has increased to eight. This to an extent addresses criticism of the lack of board strength and strong links with the former promoters of Fortis.

Yet, one can’t help notice the links the new inductees have with some bidders, which begs the question: is there a conflict of interest?

The most prominent link is with Ravi Rajagopal. He is the current Chairman of JM Financial Singapore. The JM Financial website says Rajagopal helps identify opportunities for the company in the UK and Europe.  Why is this relevant? JM Financial, according to people familiar with the matter, is advising the Munjal-Burmans, one of the four binding bidders for Fortis.

The other connection: Suvalaxmi Chakraborty. She is an advisor to Fullerton India Credit Company, which is a subsidiary of Temasek Holdings. Why is this relevant? The investment company holds a stake in Manipal Health Enterprises, which has also made a binding offer for Fortis.

Lastly, Indrajit Banerjee has a strong connection with Ranbaxy, which was owned by the Singh brothers, the erstwhile promoters of Fortis. Ranbaxy was sold to Japan’s Daiichi in 2008 for $4.6 billion, which in turn sold the company to Sun Pharma in 2014 for $4 billion.

Fortis did not comment for this article.

Governance experts say these connections could be random and disconnected. More so, advisory positions are one step further from direct involvement hence not as much a concern. But having said that, there are questions that must be asked.

Given the interest in Fortis and number of parties involved, should members with even the slightest connection to related parties even in advisory positions be nominated? Does this qualify as a conflict of interest? And should there have been more transparency on how East Bridge and Jupiter even arrived on these names?

And while these questions remain, experts will wait to see if the nominees accept to be a part of the board and whether there will be any further restructuring. ​

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

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Why there is a dire need for due diligence in the Fortis deal

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Five Bids. Three Indian investors, two private equity firms and two foreign companies. The interest in the assets of Fortis is obvious, but the trepidation among the bidders hasn’t gone unnoticed.

Of the five bids that have come in, only the bids by Munjal-Burmans and Manipal-TPG qualify as really binding. The remaining offers by IHH, the Radiant-KKR consortium and by Fosun are only partially binding.

That means the first tranche of their investment offer is immediate, and doesn’t require due diligence of Fortis books, while the second tranche, which involves the larger part of the investment, is subject to it.

The reason they are partially binding is because investors have not been able to conduct due diligence of the company, which would have allowed them to see if they are comfortable with the books and ascribe the best value to the assets.

One of the reasons why some of the recent bidders such as Radiant-KKR and Fosun haven’t been able to conduct due diligence is due to Fortis signing a binding agreement with Manipal TPG, which would prevent other parties from going through with due diligence procedures.

While this is the situation now, the lack of information given to some bidders goes back to 2017.

For example, the Munjal-Burmans combine in their first press release issued on April 12, said they had entered into non-disclosure agreement with Fortis in July 2017.

However, talks didn’t fructify as Fortis asked for commercials or a price before due diligence could commence.

Ironically, now, the Munjal-Burmans in their latest Rs 1500 cr offer have waived the need for due diligence. They have said that only if Fortis allows any other party to conduct due diligence in the validity period the Munjal-Burmans will then look to carry out due diligence with the imporoved offer then being subject to it.

In this context, it is important to note that Manipal-TPG were allowed access to the books for a few months.

In any case, the other bidders, IHH, Radiant-KKR and Fosun, haven’t been as bold as Munjal-Burmans,  or as fortunate as Manipal-TPG.

They have caveated their bids and rightly so according to experts. Fortis has had a murky few months.

From allegations on ex-promoters siphoning of Rs 500 crore from Fortis, to a delay in releasing second quarter numbers, and lastly with the auditor Deloitte eventually raising red flags once the second and third quarter numbers were released.

The internal audit reports from Luthra & Luthra and the Serious Fraud Investigation Office (SFIO)  probe are still pending.

The history of the promoters isn’t comforting either, and the Daiichi case weighs on the mind of experts. The Japanese company had bought Ranbaxy in 2008 for $4.6 billion, only to be saddled with USFDA issues, and eventually ended up selling the company to Sun Pharma for $4 billion, in 2014.

No one can ignore questions raised on lack of full strength of the board, links of the board members and now even the expert panel committee members to the ex-promoters.

The most recent event that raised eyebrows was Renuka Ramnath stepping down from the three member expert advisory panel within a week and one day before a decision was due, citing preoccupation.

Due diligence is as important for shareholders as it is for bidders. This is even in a case where the share value post due diligence could be lower than the current prices cited.

The advantage according to Amit Tandon of IiAS is that what exists on the books will be out versus any negative surprises later and protect from potential legal liabilities.

According to him a throrough due diligence by all parties will bring greater credibility to the sale process allowing for more aggressive bids, a fair and competitive process and eventually the best value for shareholders.

So where do things stand currently? The latest is that Fortis did not accept Manipal-TPG’s one time waiver option to provide other bidders a chance for due diligence.

Manipal-TPG taking feedback from shareholders waived their exclusivity right giving other potential bidders the right to conduct due diligence but with conditions. It is some of these conditions, which warrant another detailed discussion, that Fortis described as ‘onerous’  and hence did not accept it.

As of now there are other factors to explore. Will Manipal-TPG relax their one time waiver option to allow a fair bidding process?

Does the binding agreement come with a break up fee?And is the company even in a position to pay it, if there is one?

Amid all these questions one can’t help but wonder when the audit reports by SFIO and Luthra & Luthra will be released and what indeed the audits and these books might contain.

Till, then, it seems to be status quo. ​

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

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