Fortis sale: Munjal-Burman offer not in investors’ best interests, say proxy firms

 

Proxy advisory firms have questioned the decision of Fortis Healthcare Ltd’s board to choose the offer from financial investors over those from firms with experience in running hospitals.

Stakeholder Empowerment Services (SES), in a report, said the offer from Hero Enterprise chairman Sunil Munjal and Dabur chairman Anand Burman is not in the best interest of shareholders, and has been recommended by a divided board. Three members of the Fortis board that took the decision have since resigned.

“In this case experience of incoming partner is vital for long-term value proposition. The chosen partner Munjal and Burman family doesn’t have same depth of experience of running this business as others such as IHH Healthcare Bhd,” said J.N. Gupta, co-founder and managing director of SES.

Shriram Subramanian, founder and managing director of InGovern Research Services Pvt. Ltd, said the Fortis board has overlooked better offers. “Burman and Munjal are financial investors and will not be in a position to do any value addition in the company which is a going concern. The board also chose to overlook the advice given by its advisers and even the majority shareholder Yes Bank Ltd has asked the board to consider the best bid,” said Subramanian.

Meanwhile, three members of the Fortis’s board resigned ahead of an extraordinary general meeting that was to decide whether they could continue as directors.

A group of shareholders had called the EGM on Tuesday seeking the removal of some directors. Tejinder S. Shergill, one of the three directors who resigned on Monday, stepped down saying the company’s board had sufficient strength. The other two—Harpal Singh and Sabina Vaisoha—resigned ahead of Tuesday’s EGM citing shareholder disapproval.

“In the EGM, the shareholders can chose a new board and the board can then look at the bids afresh to ensure that the best bid is considered,” Subramanian added.

Earlier this month, the Fortis board had brought in external advisers to assist them in evaluating the various offers. The board set up an expert advisory committee comprising Deepak Kapoor, former chairman of PwC India, and Lalit Bhasin, chairman of the Indian Society of Law Firms, along with two financial advisers—Standard Chartered Bank and Arpwood Capital—and law firm Cyril Amarchand Mangaldas.

“If one goes by press reports, the board ignored the advice of independent advisers as well. This time governance and transparency suffered a third attack,” said SES in the report. “The fact that board was divided clearly indicates that decision was not in best interest of shareholders, as one side disagreed and the other cannot be said to be representing majority shareholders.”

SES also raised concerns over the independence of the board. Three out of the five directors who purportedly favoured the Munjal-Burman offer were/are also directors in Religare Enterprise Ltd and Religare Capital Markets Ltd, a unit of Religare Enterprises Ltd, SES noted.

“While Harpal Singh recently resigned from the board of Religare Enterprise, Brain W. Tempest is a director on the Board of Religare Capital Markets. Sabina Vaisoha is a director on the boards of both Religare Enterprises and Religare Capital Markets,” said Gupta of SES.

According to Subramanian, the resignation of the board ahead of the EGM is also like a face-saving exercise in wake of shareholders seeking their removal.

Link: Mint- May 22, 2018