Bids for Fortis may be revised downwards after ownership controversy

Prospective bidders for Fortis Healthcare, which is in the midst of a takeover battle, might consider revaluing their bids, possibly revising them downwards, after controversy around ownership of the Fortis brand emerged.

The fourth-quarter financial results too took a hit, thanks to a provisioning of around Rs 5.8 billion, whose recovery is doubtful. Bidder sources said they had been asked to submit bids on June 30. The earlier date for submission was June 28. However, since the announcement of results was deferred to Wednesday, the healthcare major extended the date for submitting bids. The deal, however, may wait until the audited financial results come in.

Prospective bidders said concerns around the ownership of the Fortis and SRL brands might have a bearing on valuation. “Fortis is struggling with legacy issues. This not only affects its financials, but brand ownership too has come under the scanner. We are re-evaluating our offer, and the recent developments may have a bearing on the valuation,” said a prospective bidder. According to the red herring prospectus filed with the Securities and Exchange Board of India in 2013, FHL has said it does not own the trademarks, including the names and logos, of the Fortis brand. It pays a licence fee to use the brand and the logo.

Parties related to the promoter group have filed a civil suit before the district court in Delhi (in February this year), claiming implied ownership of the brands Fortis, SRL and La Femme, in addition to making financial claims. 

In an analyst call, the Fortis management indicated that it is taking action to secure the brand.  The bidders, however, are concerned about the latest developments. “The financial irregularities were factored in to a great extent during the due diligence process. However, fight for the brand is a new development. We are fine even if the Fortis brand does not come in as a part of the transaction, but this would affect valuation,” said another bidder.

“A concern area for Fortis would be one of the bidders dropping out or lower bids than what we saw in the second round from other potential suitors," said India Infoline.

Four bidders are expected to submit their bids — Sunil Munjal-Anand Burman combine, Manipal Group-TPG consortium, IHH Healthcare, and Radiant Life Care. 

Shares of Fortis Healthcare were trading in the green despite the company reporting a loss of Rs 9.32 billion in its delayed, unaudited fourth-quarter results. 

"The stock has lost 14 per cent of its value in this calendar year 2018," India Infoline said.