A takeover battle is brewing in Singapore. Khazanah, the Malaysian sovereign fund, has said that it will make an open offer to raise its stake in Parkway Holdings, the largest hospital chain in Singapore, from 23.32 per cent to 51 per cent. At the moment, the Singh brothers, Malvinder and Shivinder, control Parkway through Fortis Healthcare which had bought a little over 25 per cent in the company from TPG Capital in March for $650 million. They have dug in their heels and indicated that they won’t let go. To show their intent, they have bought some more Parkway shares from the market, which has raised their stake in the company to 25.37 per cent.
The battle can go either way from here. The Singh brothers are loaded with money. Less than two years ago, they had made close to Rs 10,000 crore (over $2 billion) when they sold family flagship Ranbaxy Laboratories to Daiichi Sankyo of Japan. Khazanah is bigger. It has assets worth $28 billion on its books. If the Singh brothers still get the upper hand, it will be their finest hour. In fact, the entire think tank — the two of them and Religare Chairman and Managing Director Sanjay Godhwani — is camped in Singapore to devise a defence strategy. Conversely, to lose control of an acquisition in a matter of months will be serious loss of face for them.
The question that has not been answered convincingly so far is that why is Khazanah interested in Parkway all of a sudden? It is a sovereign fund, but a fund nevertheless. It cannot be expected to run a chain of hospitals. Ideally, it should have been happy when Fortis entered the scene in March. Fortis is the largest hospital chain in India. Frugal management lessons learnt in India could have been exported to Parkway hospitals in East Asia to effect savings. In fact, such a plan was slated for the drawing board sooner than later. This should have been good news in the making for all shareholders, including Khazanah. This makes its open offer all the more inexplicable. Why does it want to upset the applecart?
The doctors of Parkway were relieved when Fortis had stepped in. Till then, the chain was owned by a handful of funds. Apart from Khazanah and TPG Capital, there were The Bank of New York Mellon Corporation (5.99 per cent), Newton Investment Management (5.98 per cent) and Franklin Resources (5.98 per cent). Funds, everybody knows, are focused on profits in the immediate future, while strategic investors pursue long-term goals.
The next question is for the investment bankers. Didn’t they anticipate this move from Khazanah? Fortis was advised by Religare, which owes an explanation to all the shareholders of the company. If Fortis sells its stake in Parkway at a profit, it will still be a story with a happy end for the shareholders. But if it spends more money on the acquisition when it already has management control, then it will be a different story.
Conventional wisdom tells us that there is always friction in a company when there are two significant shareholders and none has control of the management. How could the advisers let Fortis walk into such a situation? There are other knots too in the deal. One, Parkway is putting up a hospital in Kolkata with Apollo Hospitals, Fortis’ arch-rival. Two, Khazanah is an investor in Apollo Hospitals.
For the Singh brothers, much is at stake. Parkway is a company they have held in high esteem for several years. Even their father Parvinder Singh, who died in 1999, would often interact with the Parkway brass to understand how it had achieved scale and brought in service excellence. The acquisition was a dream-come-true for the family. So, will they sell? Sentimental attachments don’t count much. The brothers had shocked the world when they sold Ranbaxy. Their grandfather Bhai Mohan Singh would often refer to the company as his fourth son after Parvinder, Manjit and Analjit. Parvinder fought a bitter boardroom battle with his father in the 1990’s to ensure that Ranbaxy stays the course he thought was right. He fought with his father for the cause of the professional managers; these men indeed played a stellar role in putting Ranbaxy on the global pharmaceutical map.
Malvinder had recently relocated to Singapore to run Parkway. Fortis was put in charge of Shivinder and Religare came under Godhwani. In fact, Malvinder and Shivinder resigned from the Religare board to make the separation of duties very clear. (However, Godhwani serves on the board of Fortis as well as Parkway.) Is Malvinder prepared to return to India so soon? This may very well decide how Fortis plans to deal with Khazanah.
Parkway is important for them because of another reason. The brothers are internationalists — they see the whole world as their playground. When they were the promoters of Ranbaxy, the company did a series of international acquisitions. In fact, at one time it was the largest Indian buyer of overseas assets after the Tata group. Religare too wants to become a global financial powerhouse. It has ambitions to grow in the West and in the emerging markets of Asia as well. Can the health-care business be far behind? While Fortis will chase opportunities in India, Parkway is the vehicle for growth in East Asia, Malaysia included. At the moment, Khazanah has thrown a spanner in the works.