Three directors of Fortis Healthcare Ltd have stepped down from the board just ahead of a shareholders’ meeting to decide their fate, in a move that threatens to restart the hotly-contested bidding process and further delay the sale of India’s second-largest hospital chain.
Independent directors Sabina Vaisoha and Lt. Gen. (retired) Tejinder Singh Shergill and non-executive director Harpal Singh have resigned, citing personal reasons, Fortis said in separate stock-exchange filings.
The resignations come after some institutional shareholders of Fortis demanded that four directors–Brian Tempest is the fourth–quit the board. The Jupiter India Fund and East Bridge Capital had said that the directors had failed to work in the interest of the company’s shareholders while deciding the offers for selling the hospital chain.
Fortis had called for a meeting of all its shareholders on Tuesday to decide on the directors’ fate.
All four directors were appointed by Fortis founders, the brothers Malvinder Singh and Shivinder Singh.
Harpal Singh is the father-in-law of Malvinder Singh, while Tempest is a former CEO of Ranbaxy Laboratories Ltd, the drugmaker that the Singh brothers sold to Japan’s Daiichi Sankyo in 2008.
The four directors had earlier sent a note to shareholders dismissing allegations of not satisfactorily exercising their fiduciary duties and failing to maintain the expected levels of corporate governance, and had asked them to take an "informed decision" while voting on their fate.
As calls for the removal of these directors grew, the activist investors had recommended on 26 April that three persons join the board immediately as additional independent directors.
The appointment of the new directors -- Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee -- is awaiting shareholders’ approval.
Meanwhile, Fortis's single-largest shareholder, Yes Bank, has urged the board to consider revised bids for the hospital chain (of Manipal Hospital Enterprises and IHH Healthcare) despite board acceptance of the Munjal-Burman offer, said a report in The Economic Times, 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.
The battle for Fortis
The friction with the directors and the recommendation of the new directors had unfolded as Fortis was evaluating bids for a takeover, which has witnessed many twists and turns.
In late March, Fortis ended speculation as it announced to sell its hospital business to Manipal Hospital Enterprises Pvt. Ltd, which is backed by private equity investor TPG Capital.
But the decision led to an outcry from some minority shareholders on concerns that the TPG-Manipal offer undervalued Fortis. This opened the door for other suitors to bid for the company.
Subsequently, Malaysia’s IHH Healthcare, the consortium of Hero Enterprise and the Burman Family Office, China’s Fosun and KKR-backed Radiant Life Care Pvt. Ltd offered to invest in Fortis. As the bidding war intensified, TPG-Manipal, IHH Healthcare, Munjal-Burman and Radiant Life revised their offers by one or more times.
Fortis had been looking for buyers for more than a year but legal cases against brothers Malvinder and Shivinder Singh deterred potential investors. However, suitors began eyeing Fortis when the siblings lost control of the company in early March after lenders seized the shares the brothers had pledged to take loans.
Finally, on 10 May, the Fortis board chose an offer made by a consortium of Hero Enterprise Investment Office and Burman Family Office to invest in Fortis.
However, the bidding war has failed to die down as Manipal again revised its offer for Fortis.
Manipal increased its offer to buy Fortis shares by 12.5% to Rs 180 apiece from its most recent offer of Rs 160 each.
Subsequently, IHH last week extended the validity of its offer to invest in Fortis and said it would take part in any new bidding process the Indian company might start.
Now that three Fortis directors have quit, the sale of the hospital chain may get further delayed, with a fresh bidding war looming large on the horizon.