Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on December 17, 2018 - December 23, 2018

IHH Healthcare Bhd’s acquisition of a 31.1% stake in Fortis Healthcare Ltd — India’s second largest hospital network — in a deal worth US$1.1 billion may have hit a stumbling block after the Supreme Court of India halted the sale of the shares last Friday.

The deal had involved a costly bidding war between the Khazanah Nasional Bhd investee company and three other bidders with equally deep pockets.

It was reported in India last Friday that the Supreme Court had ordered the purchase of Fortis by IHH Healthcare to be put on hold.

Fortis’ statement to the Bombay Stock Exchange says, “…we would like to inform that the company was not a party to these judicial proceedings. We are awaiting the receipt of this order, and upon consideration of the same, we shall respond appropriately, in accordance with applicable law.”

Japanese drugmaker Daiichi Sankyo Co had gone to court arguing that Fortis’ former promoters, Malvinder Singh and Shivinder Singh, had acted in contempt of the court by creating fresh encumbrances to their shares in Fortis.

Daiichi Sankyo is enforcing a US$385 million arbitration award against the Singh brothers in regard to the acquisition of Ranbaxy Laboratories Ltd back in 2008.

After IHH Healthcare was announced the winner of the bid to acquire Fortis back in July, Daiichi Sankyo had approached the Delhi High Court to block the sale. It alleged that the brothers were in violation of their undertaking to court that they had sufficient unencumbered assets to satisfy the arbitration award as the undertaking was given on the basis of their shareholding in Fortis.

The legal battle between Daiichi Sankyo and the Singh brothers started in 2008 when the Japanese company acquired their 34.85% stake in Ranbaxy Laboratories, a pharmaceutical company, for US$2.4 billion.

The deal was touted as a way for the Japanese company to extend its reach into emerging economies. Ranbaxy is the largest pharmaceutical company in India with products marketed in 125 countries. Daiichi Sankyo went on to purchase the rest of Ranbaxy, spending US$4.6 billion in the process.

After acquiring the stake, Daiichi Sankyo found that Ranbaxy’s plants were under scrutiny by the US Food and Drug Administration (FDA) and the Department of Justice. The Japanese company had to spend US$500 million on resolving a lawsuit and federal charges on Ranbaxy in 2013.

Daiichi Sankyo took legal recourse to recover the US$500 million from the Singh brothers, alleging that the promoters had concealed information on the US FDA scrutiny of its plants and the prohibition on the marketing of the products in the US.

In April 2016, Daiichi Sankyo succeeded in getting an arbitration award worth US$385 million. The Singh brothers had given the undertaking that they had enough unencumbered shares in Fortis to ensure that the award was satisfied.

Early last year, the Singh brothers found themselves forced out of Fortis and their shares in the company dwindled to a single-digit percentage as banks claimed most of the encumbered shares. Without a controlling shareholder, Fortis’ creditors called for an open bid for the shares.

Fortis then found itself at the centre of a bidding war between IHH Healthcare and three other bidders, including TPG Capital-backed Manipal Health Enterprises Pvt Ltd, KKR-backed Radiant Life Care Pvt Ltd and the consortium of Hero Enterprise Investment Office and the Burman Family Office.

IHH Healthcare offered US$584 million to acquire Fortis but the latter’s directors decided to accept a US$250 million offer from a consortium comprising Hero Enterprise Investment Office and the Burman Family Office.

The consortium’s offer was rejected by Fortis’ shareholders as it was the lowest among the four. In July, Fortis’ board announced that it had accepted IHH Healthcare’s offer.

In November, IHH Healthcare announced that it had completed the acquisition of a 31.1% stake in Fortis.

The process to acquire Fortis was a lengthy one and the bidding war inflated the value of the group in just a matter of weeks. However, the acquisition will give IHH Healthcare a foothold in India, the second largest country in the world by population.

With Mitsui replacing Khazanah as IHH Healthcare’s largest shareholder, will the acquisition of Fortis still be a priority for the group?

 

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