The Fortis Rigmarole Deciphered

Fortis board has apparently approved of the Munjal-Burman offer.

Why? To quote the board,

The non-binding bids involve considerable uncertainty and merely running a due diligence process does not guarantee a binding bid which the board had wanted in the best interest of the company.

I seriously doubt it.

Who? Well, 4 board members who are apparently representatives of the previous promoters (appointed by them) voted in favour of the Munjal-Burman offer, while 2 minority shareholders namely National Westminster Bank Plc, a trustee of Jupiter India Fund, East Bridge Capital Master Fund Ltd and East Bridge Capital Master Fund I Ltd were apparently against them.

Later, Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee, were inducted onto the Fortis board after they were nominated by East Bridge Capital and Jupiter Asset Management, a group of minority shareholders. They have appealed for an EGM (to be conducted on May 22, 2018) to repeal these 4 directors on allegations that they are not acting in the best interest of the shareholders, and well the market seems to have the same view. The requisition cited by the four board members in their joint representation stated,

The minority shareholders like us have lost confidence in the suitability, bona-fides or independence of the current members of the board and therefore are seeking their removal.

Why do they feel so? Well, just by scrutinizing the deal via a comparison given below you can have a fair idea (refer the images):

1) Munjal-Burman seems to be getting a 20% stake, which is neither enough to get controlling interest nor to block any particular decision or deal.

2) They did not mention any plan in the short term at least to bring about management change, which is at the crux of the distress that Fortis has been facing recently. Internal procedural failure, corporate governance lapses and management incompetency are at the forefront of their stumbling block. At least, the other two bidders did plan to tackle this issue.

Source: BloombergQuint

3)Even if you look at it from the valuation front, maximum shareholder value, the highest bid was submitted by IHH at Rs.175/share.

Then why did you choose Munjal- Burman? Just because IHH bid was not binding? They only requested for a 7 day period for due diligence. The board had already wasted 45 days in this farrago and they couldn't give IHH a short-time span for due diligence?

Source: BloombergQuint

4) Lastly, the Munjals have no prior experience in the healthcare industry (hospitals specifically), merely throwing around money is not going to change the company's fundamentals and turn it around.

The decision by the board regarding the deal is at best "murky" and the thought process behind their selection does not seem rational at all, merely looks like a black box.

My views may not be complete as of now, as we shall need to wait for further developments and comments by the Sunil Munjal and Anand Burman for better clarity.

Let's see if the shareholders approve.