With the the approval of shareholders for IHH Healthcare’s offer to buy Fortis now a mere formality, as the board’s choice may not face backlash from majority shareholders this time unlike previous occasions.
One possible danger that could derail IHH-Fortis deal could be the litigation over enforcement of Rs 3500 crore arbitration award between Japanese drug maker Daiichi Sankyo and Fortis erstwhile promoters Singh brothers.
A Singapore arbitration tribunal gave Daiichi Rs 3500 crore arbitration award in 2016, on grounds that the brothers made false claims in a self-assessment report and fraudulently misrepresented and concealed the genesis, nature and severity of the US regulatory investigations of Ranbaxy when Daiichi bought their 34.82 percent stake for USD 2.4 billion in 2008.
Last week, the Delhi High Court had impleaded Fortis as one of the parties in the arbitration award, based on the application filed by Daiichi seeking stay on the Fortis-IHH Healthcare deal.
Daiichi in its application contended that the implementation of the Fortis-IHH transaction “will contravene orders issued by this honourable court, the honourable Supreme Court of India as well as significantly defeat the execution of the award in India,” stated the application.
This includes orders to maintain the value of unencumbered assets that two holding companies of the Singhs disclosed to court.
While the court has not passed orders to block the Fortis-IHH deal, it suggested that it would intervene if the transaction was found to violate earlier court orders.
The court has asked Fortis and the Singh brothers, Malvinder and Shivinder, to respond to Daiichi’s application by the next hearing scheduled on August 1, suggesting the deal may be blocked in case the court finds merits in Daiichi’s arguments.
So, what next for Fortis?
Fortis is moving ahead with the IHH deal as it believes that Daiichi’s plea to block the deal is “unfounded”.
Fortis said it is neither a party in the arbitration award nor in the disputes between Daiichi and Malvinder Singh, Shivinder Singh and others.
“To note, Malvinder Singh and Shivinder Singh have already tendered their resignation as Directors of Fortis Healthcare Ltd effective, February 8, 2018, and currently hold negligible shareholding in the said company,” the company said in statement last week.
The shareholders of Fortis are scheduled to meet at an extraordinary general meeting in Delhi on August 13 to approve IHH’s offer, there after it needs Competition Commission of India (CCI) approval to consummate the deal.
Singh brothers stake has fallen to 0.74 percent as on June from 34.43 percent in February as lenders invoked the shares pledged by them.
Pharma Q1 results
Analysts expect pharmaceutical companies to deliver improved performance in Q1FY19 helped by rebound of domestic formulation business on a base disrupted by GST last year and on currency tailwinds.
The US generic business that contributes around 40-50 percent of overall sales for many large Indian drug makers has started to see favourable regulatory environment and pick up of generic approvals.