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Proxy advisory firm IiAS on Tuesday questioned the legitimacy of Fortis Healthcare's board of directors, and the process it adopted to sell the company.
"Investors have called for greater independence at the board level to support an objective decision-making process. Yet, in continuing to rely on known associates, the board is widening the trust deficit with investors," said IiAS in its latest report titled ‘Fortis Healthcare: Finding the best medicine’.
"Administering a selling process that limits the full discovery of price, leaves investors worried that they are being shortchanged," IiAS added in the report.
The company said it believes Fortis' board should run a process that allows all potential bidders to bid, albeit within a tight timeline. It alleged that both Rohit Bhasin, appointed as an additional director, and Deepak Kapoor, appointed the head of the expert advisory committee, are closely associated with PricewaterhouseCoopers (PwC).
PwC has been the auditor for all Religare Group companies for quite some time now.
Also, Standard Chartered Bank, which was appointed to aid the expert advisory committee, was a large investor in Fortis in the past, IiAS said in the report.
"By allowing the committee to decide only on the binding offers, the board has already cut its wings: only two of the five are binding offers," it said.
IiAS asked Fortis to put out a vendor information document, outlining all the potential risks associated with the acquisition – based on the outcome of due diligence done by the Manipal-TPG duo – or create a data room that allows potential bidders a few days to comb through.
"If the argument is the financial urgency for a capital infusion (Fortis Healthcare’s debt is rated ICRA C / ICRA A4), then the Rs 1.6 billion (Rs 160 crore) loan it has recently raised should help it tide over the immediate cash flow requirements," IiAS said.
Given its credit quality, Fortis may well have to raise short-term finance at excessive rates. But with five bidders for the business, access to finance will no longer be a concern for Fortis.
IiAS urged Fortis’ board to avoid making existential decisions for the company until shareholders have voted on the resolutions to overhaul the current board of directors, in an EGM called by its 12.04 percent shareholders.
"We have seen an unprecedented five bids coming in for an asset. If the board continues its current path, we may see another unprecedented event: a Indian class-action suit," IiAS said.
Fortis received five bids from Manipal-TPG (valued Fortis at Rs 155 per share), Munjal-Burmans (Rs 160 per share), IHH Healthcare (Rs 160 per share), Fosun (Rs 156 per share) and KKR-backed Radiant Life Care (Rs 165 per share).
The company's board, which met last week, said the advisory committee will meet on April 25 to evaluate binding offers and recommend the best one to it. The board is expected to take a decision on April 26.
Only two offers, those of Manipal-TPG and Munjal-Burmans, are binding.
Shares of Fortis rose 0.87 percent on Tuesday and were trading at Rs 151.50 on BSE at 12.03 pm.
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