There is much unease over the Fortis-Manipal Hospitals transaction, formalised just last week.
Voices of dissent have emerged from minority shareholders and an ongoing case involving Fortis’ pre-deal promoters continues to cast its long shadow on the merger.
But can these concerns lead to the deal coming unstuck?
Tough path
Corporate lawyers and sector specialists say that many hurdles that could upset the apple-cart are still pretty much in the way.
And that’s why the coming weeks, may be months even, will be a tough path to navigate for Manipal Hospitals Founder Ranjan Pai, backed by private equity group TPG.
Fortis had decided to merge its hospitals business with Manipal Hospitals, a deal billed among the largest in healthcare.
The transaction also included sale of 20 per cent stake in SRL Diagnostics. Manipal Hospitals was to invest ₹3,900 crore and the merged entity had Pai holding 37.9 per cent and Fortis’ promoter family’s Malvinder Singh and Shivinder Singh holding 0.3 per cent.
For a company whose chips were down, the troubled Fortis could not have got a better “white knight” in Manipal Hospitals, says Sanjiv Kaul, a healthcare veteran and Partner, ChrysCapital.
Manipal Hospital’s Pai would give Fortis Hospitals the “discipline, direction and dynamism” it desperately needs, he says.
But a clutch of minority shareholders contend that Fortis had been undervalued and is even reportedly pushing for a more transparent, upgraded valuation for the hospital assets. The present deal structure may have some head room to revise the valuation, but only up to a point, cautions an industry-watcher, on the limited elasticity of the deal.
Daiichi Sankyo
The real “elephant in the room”, he says, is Daiichi Sankyo.
The Singh brothers are presently locked in litigation with Japanese drugmaker Daiichi Sankyo involving the sale of drug company Ranbaxy, formerly promoted by the Singh family. After Daiichi faced stringent regulatory action on the erstwhile
Ranbaxy’s plants, it went in for international arbitration against the Singh brothers alleging that they had not disclosed the entirety of their regulatory problems when their original deal was sealed (2008).
An allegation the brothers deny. In the legal battle that ensued, Daiichi was awarded damages amounting now to ₹3,500 crore from the Singh brothers.
With the Indian courts standing by the international arbitration award, the Singh brothers approached the Singapore High Court and the case comes up next week.
Meanwhile, Daiichi is said to have approached markets regulator SEBI to block the merger.
“In order to obtain a stay on the Fortis-Manipal merger, Daiichi Sankyo will have to prove the role that the Fortis Hospital assets play in the payment of the award amounts by the Singh brothers and whether the payment will be adversely impacted pursuant to the Fortis-Manipal merger,” says Kritika Agarwal, Principal at Majmudar & Partners.
RHT Health Trust
Pointing to the many wheels within wheels, an industry veteran cites Fortis’ decision to buy back assets held by RHT Health Trust listed in Singapore.
That is a transaction of over ₹4,000 crore and questions are being asked here too, besides the possibilities of what more could unravel from here that would link back to the Singh brothers.
Old suitor
Finally, there comes the question of old, rumoured suitor, Malaysia’s healthcare major IHH Healthcare Berhad and whether it would jump into the fray with a counter offer.
“This will depend on the definitive agreements executed between Fortis and Manipal. Typically, parties agree to maintain exclusivity for a certain time period, which would restrict the sellers from engaging in discussions with third parties for the target business,” says Agarwal.
Given the many layers to the deal, most certainly a price has been extracted for Fortis’ legacy issues, says Ratan Jalan, Founder of Medium Healthcare Consulting and former head of Apollo Health and Lifestyle.
But the real challenge in such large deals begins only after these hurdles are scaled, he says, when the two different cultures of Manipal and Fortis will have to be integrated.
If it were a movie, he quips, he would call it “ Two States ”, reflecting the difference of cultures as did Chetan Bhagat’s novel.