Munjal-Burman deal may unravel as PEs draw support to oust Fortis directors

The Fortis takeover deal might be in for new twists as private equity (PE) funds East Bridge Capital and Jupiter Asset Management, which had demanded the removal of four directors from the board of Fortis Healthcare Ltd (FHL), are likely to oppose the board's decision to choose Hero Enterprise-Burman Family Office offer for the hospital chain.

According to media reports, sources close to the PE funds have claimed that they favoured the offer made by Malaysia's IHH Healthcare that valued Fortis at Rs 175 a share. East Bridge and Jupiter Asset Management together hold 12.04 per cent stake in FHL. 

A Livemint report claimed that the hedge funds had also drawn support from large shareholders, who represent close to 30 per cent of FHL shareholding. Fortis has called an extraordinary general meeting (EGM) on May 22 to vote on the resolution to remove four directors, Brian Tempest, Harpal Singh, Sabina Vaisoha and Tejinder Singh Shergill. 

Analysts have already pointed out that if these directors, who had voted in favour of Sunil Munjal of Hero and Burmans of Dabur, are removed, then their decision is also likely to be challenged by the shareholders. The PEs have raised issues related to corporate governance in the Fortis board. 

It may be noted here that Yes Bank's stand on this matter may be crucial as it is also one of the major shareholders, with a 15 per cent stake in FHL. An email sent to Yes Bank remained unanswered. 

In their latest offer, the Munjal-Burmans have offered to invest Rs 18 bn in FHL through a combination of preferential issue of equity and warrants. Their offer values Fortis at over Rs 90 billion, or roughly translates into Rs 172 per share. The duo has proposed an upfront infusion of Rs 10.5 billion directly into Fortis. The remaining investment of Rs 7.5 bn will be infused into the company over the next four months. They have also sought three board seats in Fortis.

The offer is binding and there is no scope for backing out. 

Tan See Leng, managing director and chief executive officer of IHH Healthcare has said that they were evaluating all options and were waiting for the shareholders' decision on the matter. Leng had told Business Standard last week that they have already reached out to large portfolio investors after the board's decision, and that they have sympathised with IHH.