Fortis arm asked to pay $75 mn for profiteering amid cash crunch, takeover battle

By Joseph Rai

  • 29 May 2018
Credit: Shah Junaid/VCCircle

A Delhi High Court committee has asked a unit of Fortis Healthcare Ltd to pay Rs 503 crore ($74.6 million) within a month for alleged unwarranted profits, even as India’s second-largest hospital chain faces a cash crunch and a looming bidding war again.

The subsidiary, Fortis Escorts Heart Institute & Research Centre Ltd, had initially received an order in 2016 from the Directorate General of Health Services, asking it to pay Rs 503 crore for making alleged unwarranted profit by not complying with the conditions of a land lease since allotment of a land parcel in 1982, Fortis said in a stock market disclosure.

Escorts had challenged the order in the Delhi High Court. Responding to the plea, the court had sent the matter to a special committee for hearing. On Monday, this committee directed Escorts to deposit the amount, Fortis said. Escorts is mulling legal options, it added.

The hospital chain didn't respond to an email seeking comment till the time of filing this article.

Fortis had acquired a 90% stake in Escorts for Rs 585 crore in an all-cash deal in September 2005, beating other suitors such as Apollo Hospitals and Singapore-based Parkway Pantai, part of Malaysia’s IHH Healthcare Berhad Group, which is now in the race to acquire Fortis.

The court order comes at a difficult time for Fortis. The hospital chain is bracing for a second round of bidding from suitors that include TPG-backed Manipal Health Enterprises Pvt. Ltd and IHH Healthcare.

Chances of the renewed bidding war increased after Hero Enterprise Investment Office and the Burman Family Office, which had been previously selected by the Fortis board as the preferred buyer, gave their consent to reopen the takeover process for Fortis.

The consortium was selected as the winner of the takeover battle on 10 May over Manipal, IHH Healthcare, KKR-backed Radiant Life Care Pvt. Ltd and China’s Fosun.

However, the decision to select the Hero-Burman consortium was likely made against the opinion of some of the board advisers and had not gone down well with a section of the company’s shareholders. Within days of the winning announcement, TPG-Manipal raised the offer to buy Fortis and later extended its validity period. IHH Healthcare also extended the validity period of its offer.

At the same time, there has been a dramatic upheaval at the Fortis board. Shareholders last week voted to remove Brian Tempest from the board. Tempest was one of four directors appointed to the board by the Fortis founders, brothers Malvinder and Shivinder Singh. The other three had quit even before the shareholders’ meeting took place to decide their fates.

Investors Jupiter India Fund and East Bridge Capital had demanded that the four directors quit the board because, by selecting Hero-Burman bid, they had failed to work in the interest of the company’s shareholders.

The board now has only four directors. While voting out Tempest, Fortis shareholders also approved the appointment of three new directors — Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee – whose names were recommended by the activist investors. The fourth remaining board member is Rohit Bhasin.

To add to the drama, Fortis’s single-largest shareholder, Yes Bank, has urged the board to consider revised bids of Manipal and IHH, The Economic Times reported last week, citing people in the know. Yes Bank, according to the report, also urged the board to consider inviting those that did not submit or revise their bids.