Five Bids. Three Indian investors, two private equity firms and two foreign companies. The interest in the assets of Fortis is obvious, but the trepidation among the bidders hasn't gone unnoticed.
Of the five bids that have come in, only the bids by Munjal-Burmans and Manipal-TPG qualify as really binding. The remaining offers by IHH, the Radiant-KKR consortium and by Fosun are only partially binding.
That means the first tranche of their investment offer is immediate, and doesn’t require due diligence of Fortis books, while the second tranche, which involves the larger part of the investment, is subject to it.
The reason they are partially binding is because investors have not been able to conduct due diligence of the company, which would have allowed them to see if they are comfortable with the books and ascribe the best value to the assets.
One of the reasons why some of the recent bidders such as Radiant-KKR and Fosun haven’t been able to conduct due diligence is due to Fortis signing a binding agreement with Manipal TPG, which would prevent other parties from going through with due diligence procedures.
While this is the situation now, the lack of information given to some bidders goes back to 2017.
For example, the Munjal-Burmans combine in their first press release issued on April 12, said they had entered into non-disclosure agreement with Fortis in July 2017.
However, talks didn’t fructify as Fortis asked for commercials or a price before due diligence could commence.
Ironically, now, the Munjal-Burmans in their latest Rs 1500 cr offer have waived the need for due diligence. They have said that only if Fortis allows any other party to conduct due diligence in the validity period the Munjal-Burmans will then look to carry out due diligence with the imporoved offer then being subject to it.
In this context, it is important to note that Manipal-TPG were allowed access to the books for a few months.
In any case, the other bidders, IHH, Radiant-KKR and Fosun, haven’t been as bold as Munjal-Burmans, or as fortunate as Manipal-TPG.
They have caveated their bids and rightly so according to experts. Fortis has had a murky few months.
From allegations on ex-promoters siphoning of Rs 500 crore from Fortis, to a delay in releasing second quarter numbers, and lastly with the auditor Deloitte eventually raising red flags once the second and third quarter numbers were released.
The internal audit reports from Luthra & Luthra and the Serious Fraud Investigation Office (SFIO) probe are still pending.
The history of the promoters isn’t comforting either, and the Daiichi case weighs on the mind of experts. The Japanese company had bought Ranbaxy in 2008 for $4.6 billion, only to be saddled with USFDA issues, and eventually ended up selling the company to Sun Pharma for $4 billion, in 2014.
No one can ignore questions raised on lack of full strength of the board, links of the board members and now even the expert panel committee members to the ex-promoters.
The most recent event that raised eyebrows was Renuka Ramnath stepping down from the three member expert advisory panel within a week and one day before a decision was due, citing preoccupation.
Due diligence is as important for shareholders as it is for bidders. This is even in a case where the share value post due diligence could be lower than the current prices cited.
The advantage according to Amit Tandon of IiAS is that what exists on the books will be out versus any negative surprises later and protect from potential legal liabilities.
According to him a throrough due diligence by all parties will bring greater credibility to the sale process allowing for more aggressive bids, a fair and competitive process and eventually the best value for shareholders.
So where do things stand currently? The latest is that Fortis did not accept Manipal-TPG’s one time waiver option to provide other bidders a chance for due diligence.
Manipal-TPG taking feedback from shareholders waived their exclusivity right giving other potential bidders the right to conduct due diligence but with conditions.
It is some of these conditions, which warrant another detailed discussion, that Fortis described as ‘onerous’ and hence did not accept it.
As of now there are other factors to explore. Will Manipal-TPG relax their one time waiver option to allow a fair bidding process?
Does the binding agreement come with a break up fee?And is the company even in a position to pay it, if there is one?
Amid all these questions one can’t help but wonder when the audit reports by SFIO and Luthra & Luthra will be released and what indeed the audits and these books might contain.
Till, then, it seems to be status quo.
Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.