IHH’s Fortis takeover faces legal bar after court order

Bloomberg

India’s Supreme Court refused to remove a barrier to the takeover of embattled hospital chain Fortis Healthcare Ltd by Malaysian operator IHH Healthcare Bhd, the latest twist in one of the country’s most contentious corporate sagas.
The court held Fortis’ founders — Malvinder Singh and Shivinder Singh — guilty of contempt of court and said it could start similar proceedings against the company, according to a judgment. This effectively halts IHH’s open offer to Fortis shareholders that would have brought its holdings in India’s second largest hospital company above 50%. IHH is already Fortis’ largest shareholder with a 31% stake.
Fortis shares fell 8% in Mumbai, the biggest drop since March 2018. IHH is awaiting the written judgment from the court and will thereafter “consult its advisers for its next course of action,” according to its spokesman. Fortis didn’t immediately respond to an email seeking comments.
The court said contempt proceedings have been initiated against Fortis for violation of its December 2018 order to maintain status quo on the deal with IHH. Daiichi had argued that certain transactions between IHH and Fortis violated the court’s directions.
Also named in the contempt verdict was Indiabulls Housing Finance Ltd, the lender who accepted Singh brothers’ Fortis shares as collateral and then seized them when they failed to repay. This went against an earlier judicial order that had forbid the Singh brothers from selling or diluting their shareholding in Fortis.
To avoid penal action, Indiabulls can deposit the proceeds from the sale of founders’ pledge shares in Fortis while Singh brothers and their two holding companies can pay up 11.7 billion rupees ($163 million) each. The court set February 3 as next hearing date.

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Fortis, at its end, now will have to prove that it has not violated any court orders and can request that the open offer be allowed to go through, in future hearings. It can also seek review of the verdict by the same court bench or pay a fine to avoid penal action.
The block comes just as IHH’s efforts to turn around Fortis’ fortunes through cost-cutting was starting to show results. It will hobble the company’s attempt to move past a scandal in which it was allegedly defrauded of millions of dollars by its founders. The Singh brothers are no longer shareholders in Fortis.
IHH’s attempt to become Fortis’ majority shareholder was halted last year, when Japanese drugmaker Daiichi Sankyo Co contested the deal as part of its efforts to recover $500 million from the Singh brothers.
Daiichi Sankyo said that it had been promised some Fortis shares by the Singhs in a decade-old fraud claim, before the shares were seized by the brothers’ creditors.
The takeover fight for Fortis has seen as many as four separate bids, two scrapped deals, and the replacement of most of the company’s board.
Shareholders finally approved Malaysian hospital operator IHH’s takeover offer in August 2018, and the company has since embarked on a thorough revamp. New Chief Executive Officer Ashutosh Raghuvanshi’s cost cutting campaign has already begun to show in the company’s results.
The latest ruling adds another chapter in the precipitous fall of a multi-billion dollar business empire that Singh brothers once helmed.