Who will run Fortis? Munjals and Burmans are now in the race

Till last month Fortis Healthcare Ltd (FHL) just couldn't seem to dodge bad news, be it losing an arbitration case, downgraded credit ratings, investigations into alleged financial irregularities or dipping share prices. And now it's quite the belle of the ball with three suitors. Two days after Manipal Health Enterprises (MHEPL) upped the merger offer on the table by 21 per cent, FHL said that it had received another "unsolicited binding offer" worth Rs 1,250 crore from Hero Enterprise Investment Office led by Sunil Kant Munjal and Burman Family Office. The previous day, IHH Healthcare Berhad had reportedly thrown its hat in the ring for Fortis' hospitals and a stake in the SRL Diagnostics unit.

In a regulatory filing yesterday, FHL said that the proposal from Munjals and Burmans includes a Rs 500 crore binding offer immediately and Rs 750 crore once the due diligence process is complete, within the specified three-week time frame. "The said proposal is under evaluation by the company and we will keep the stock exchanges informed accordingly," it added.

Incidentally, the group entities of Hero Enterprise Investment Office and the Burman family of the Dabur Group currently hold a stake of around 3 per cent in FHL, which boasts a market cap of over Rs 8,000 crore currently. The three-page long offer letter to the Fortis board, spelling out the details, said "...as shareholders, we are concerned regarding the company's future, as it presently finds itself at a very critical juncture in its existence. While we have strong faith in the potential of the company, the various issues faced by the company over the last many months are a cause of grave concern. In this context and to address the immediate funding needs of the company as well as to develop its long-term value, we are making a binding offer."

The letter added that the upfront investment of Rs 500 crore is based on Fortis Healthcare Ltd's current financial position as reflected by its various public filings and that "Allotment and pricing shall be as per SEBI ICDR guidelines for preferential issues or Rs 156 per share which is higher". It also made it clear that the funds have to be utilised to pay off employee dues and to repay pressing creditors as well as matured loans. The letter asked for a board seat for the investors to monitor all the above. As for the subsequent tranche of Rs 750 crore, the letter said "We would expect specific rights commensurate with such investment."

This is not the first time that Hero has shown interest in FHL. Last July, they had even signed a non-disclosure agreement to explore the possibility of a merger but the discussions ended in an impasse because Hero wanted to conduct due diligence before it could state the commercials, including a price, while FHL wanted the reverse order.

Then, in the last week of March, the Munjal-Burman combine had first approached FHL management with a business offer after the company's ratings were downgraded and banks were trying to reduce their loan exposure to it. "This has left the company with less than Rs 70 crore of liquid cash," stated the offer letter, adding, "Hence, given the stress on the cash flows, we believe that the company requires immediate external funding and urgent clarity about its future in order for it to stabilize itself." But the discussions proved unsuccessful as the management reportedly "did not have the time to offer any due diligence."

The two business families are now hoping to get second time lucky. Apart from their "strong pedigree and background", which they think will give confidence to all the FHL stakeholders, the letter states that their "timely" offer is in the best interests of the company. "Our offer is simple and does not envisage any changes to the current structure, operations and assets of the company, and can be implemented in a fairly short period of time and will allow the company to focus on stabilising operations and on growth," it added, highlighting the merits of this proposal.

According to The Economic Times, Malaysia's IHH, too, has made a formal "non-binding expression of interest" to acquire Fortis for Rs 160 per share. Citing sources aware of the development, the report added that the offer sent to the Fortis board on Wednesday night - which posed to be a better option than Manipal-TPG's "complex and uncertain" offer - is subject to due diligence, further negotiations and documentation, and is valid for a week.

The report claims that the Fortis board has agreed to consider the Munjal-Burman proposal, even as the Manipal-TPG combine has the first right of refusal, allowing it to revert within five days with a matching or superior offer. "Our structure is the best of both worlds," Ranjan Pai, chairman, Manipal Education and Medical Group, told the daily. "It unlocks value and you will end up with a clean diagnostics company that can trade at 4-5 times higher multiple compared to a hospitals company. It also shields 70 per cent of the Fortis hospitals business from any probe."

So, who is going to emerge victorious in the three-way battle for FHL? Apart from the shareholders, that is.

With PTI inputs