In battle for control of Fortis Healthcare, it is advantage shareholders

Manipal-TPG combine and IHH Healthcare likely to make voluntary open offers

The brewing war between Manipal Health Enterprises-TPG Capital combine and IHH Healthcare for control of Fortis Healthcare would be advantageous for Fortis’s shareholders as both parties are aggressively trying to raise their stakes in the company.

 
According to sources, both Manipal-TPG and IHH are eyeing a controlling stake in the company, which is likely to lead to two simultaneous open offers. Sources said both suitors would try to come up with premium offers to attract investors.
 
Lawyers said this was an example of a hostile takeover where both investors could make competitive open offers to reach a reasonable shareholding in the company. In such cases, a voluntary open offer is the way out for companies, wherein they will have to buy at least a 26 per cent stake in the company as part of the takeover code. A 26 per cent shareholding will automatically trigger the mandatory open offer for another 20 per cent of the company’s capital. 
 
Both suitors are already in talks with existing institutional investors to acquire as much stake as possible after which they will make a voluntary open offer.
 
The last time such a bidding war took place was in the case of Kalindee Rail Nirman Engineers where Texmaco Rail and Jupiter Metal were locked in a battle for control. Texmaco managed to win control after Jupiter Metal bailed out. Interestingly, the premium for acquisition went as high as 40 per cent of the market price. In 2015, Deepak Fertilisers had made a hostile attempt to acquire Mangalore Chemicals & Fertilizers, but backed out after the acquisition cost became expensive when promoter Vijay Mallya and Saroj Poddar made a counter-offer.
 
“Investors will get a good deal in such a scenario as both parties are competing against each other to attract investors. However, the size of the open offer needs to be seen because if either party fails to gain control, it will have to continue in the company as an ordinary shareholder,” said an investment banker who did not wish to be named. 
 
The shares of Fortis closed 0.91 per cent higher at Rs 160.2 per share on the BSE on Thursday. In the last month, the hospital chain’s shares have gained 16 per cent.
 
However, in terms of wresting control of the company, there could still be a stalemate due to the regulatory framework. According to takeover regulations, an entity is said to be in control of a company when it has powers to appoint and remove the board of directors through an ordinary resolution. Such powers can be attained only when a company manages to own over a 50 per cent stake in the company. But in the case of Fortis, crossing the halfway mark looks challenging.
 
According to regulatory filings by Fortis, YES Bank and Axis Bank together own a 25 per cent stake in the company while mutual funds and foreign institutions own another 40 per cent stake. Retail investors own 7.1 per cent and the rest is distributed among high net worth individuals (HNIs) and corporate bodies.
 
Market investors Radhakishan Damani and Rakesh Jhunjhunwala together hold about a 1.5 per cent stake in Fortis Healthcare. Damani had picked up a 0.5 per cent stake in the company in January. Since the margin of difference is expected to be low, the role of Damani and Jhunjhunwala could be crucial. Also, many HNIs and retail investors are likely to follow in their footsteps.
 
Fortis has become a professionally managed company after YES Bank and Axis Bank revoked the shares pledged by its promoters. The Delhi High Court unencumbered assets of erstwhile promoters Malvinder and Shivinder Singh to execute the Rs 35 billion arbitral award that Daiichi Sankyo won in Singapore. As a result, these shares can now be transferred. Due to these legal contentions, the original promoters resigned from the Fortis board, which is likely to now culminate in a potential takeover war. An email sent to TPG Capital remained unanswered.