Proxy advisory firm Stakeholders Empowerment Services has raised concerns over the proposed sale of Apollo Hospitals Enterprise’s pharmacy and associated businesses to a wholly-owned subsidiary on the grounds of future interests of minority shareholders, fair valuation and conflict of interest in a related-party transaction.
SES said in a report that Apollo Hospitals is seeking shareholder approval to sell and transfer the pharmacy business to Apollo HealthCo. In furtherance of the transfer, their approval is also being sought for undertaking the related-party transaction.
The proposed sale includes the procurement of pharmaceutical and wellness products and the supply of such products to pharmacies, including investments in the pharmacy retail business and the online digital healthcare platform branded Apollo 24x7.
Shareholders have until August 14 to vote on the proposal. Since this is a related-party transaction, it will require approval from a majority of the minority shareholders. Public shareholders own 70.18 percent of Apollo Hospitals.
Apollo Hospital had not responded to queries sent by Moneycontrol about the planned deal and the issues raised by SES.
Interests of Public Shareholders
While the public shareholders of Apollo Hospitals will continue to hold 100 percent of the pharmacy business after the sale to the wholly-owned subsidiary, SES said Apollo’s plan to bring investors in that entity in the future would dilute the interests of the minority shareholders.
“An appropriate platform would be created for attracting a new pool of investor capital to enable rapid scale-up of the digital healthcare business,” Apollo Hospitals said in the postal ballot notice dated June 23.
SES objected to this point, saying, “This very clearly indicates that going forward, the WOS (wholly owned subsidiary) will not remain a WOS as stake may be shared with other parties.”
The proxy advisory firm said the undertaking is being sold to a wholly owned unit and there will be no net impact on the consolidated balance sheet and income statement.
“However, there may be impact up to the extent of capital to be raised at AHL,” SES said.
Fair valuation of transaction
The sale of the pharmacy businesses to the subsidiary as a going concern on a slump sale basis is proposed to be carried out for Rs 1,210 crore in cash. SES said it wasn’t clear how the subsidiary would pay for the business.
“The transferee (Apollo HealthCo) was incorporated only on July 26, 2020, and its shareholding was acquired by the company on June 23, 2021,” SES said in the report. “Further, the transferee has not commenced its operations and does not have a turnover. The notice does not give any details of capital/resources, etc, available with WOS and how it is going to pay for such transfer.”
SES also questioned the future valuation discovery of the entity and whether it would be disclosed to minority investors.
“Once the sale is made and external capital is raised, same will not come to shareholders for approval as approval would be required only if there is de-subsidiarisation. Therefore, valuation will remain a closed-door exercise, not requiring shareholders’ approval,” SES said.
Conflict of Interest?
SES pointed to the common shareholders, management team and board members in both companies, highlighting the possibility of conflict of interest in the transaction.
Shobana Kamineni and Sangita Reddy are directors of both Apollo Hospitals and Apollo HealthCo, SES said.
Prathap C Reddy, Preetha Reddy and Suneeta Reddy are related to Shobana Kamineni and Sangita Reddy and are interested in the transaction as directors and shareholders of the company, it said.
Sucharitha Reddy, a relative of Shobana Kamineni and Sangita Reddy, is interested in the transaction as a shareholder in the company.
Upasana Kamineni, a relative of Shobana Kamineni, is interested in the transaction as shareholder in the company and a director of the subsidiary.
Aditya Reddy, a relative of Apollo Hospitals managing director Suneeta Reddy, is a shareholder in the company and a director of the subsidiary, SES said.
Proxy Firm’s Advisory
“SES is of the view that the company is extremely economical in sharing information with shareholders and wants shareholders to approve the transaction based on sketchy information given in the notice, which does not contain holistic information of the deal,” the proxy firm said.
According to the plan, Apollo Hospitals will transfer its backend offline pharmacy business (excluding hospital-based pharmacies), digital healthcare platform Apollo 24/7, its investments in the retail pharmacy business (Apollo Medicals), and the Apollo 24/7 brand, the Apollo Pharmacy brand and private label brands to Apollo HealthCo.
The platform will combine the strengths of the Apollo Group’s offline healthcare leadership with its new-age digital offerings to address all healthcare consumer needs, the company said.
Apollo had said that the offline pharmacy business will continue to expand to 5,000 stores and maintain a healthy revenue growth rate of 18-20 percent over the next three years. The margin trajectory of this business remains intact.
In addition, the digital healthcare platform Apollo 24/7 is delivering medicines in two hours in over 10,000 pin code areas, combined with the highest availability of medicines.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
