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In an chat with ET Now, Amit Tandon, Founder & MD, Institutional Investor Advisory Services (IIAS), says all four people on Fortis board have a long association with the group and a diversity of opinion is absent. IIAS has suggested that the company should appoint an advisory committee to help the board think about the issues and take a decision.

Edited excerpts:

How have you looked into the overall developments at Fortis? Bids are being altered and sweetened to acquire it. How are you looking at the latest step for Fortis given that IHH could potentially make that hostile bid?

We have found that over the last few months, Fortis as an entity has been losing value and therefore it is fairly important for the board to prioritise and act very quickly. They are fortunate. It is not something usual in India that there are three potential bidders who have put forward bids. Two of them are supposed to be binding, one is non-binding and therefore we hope that the board will take the right decision.

Now having said so, one of the areas which we are extremely concerned about is the fact that while there are four members of the board — two of them have been there for some time, two have been appointed pretty recently — one is January and one last month. Our concern is that all four of the people have a long association with the group and we are worried that some diversity of opinion may not be present on the board, We have suggested that the company should appoint an advisory committee which will help the board think about the issues and take a decision which is in the best interest of its shareholders and its employees over the medium to long term.

What happens when such an advisory board comes in? How will it try and guide the board as to what is the best offer in the interest of minority shareholders as promoters are now the minority shareholders?

In this case, Malvinder and Shivinder in the last filing said they hold 0.7% of the equity and therefore there is no so called effective promoter, though of course, there are all kinds of rumours flying about backseat driving.

But let us leave that aside for the moment because there is no tangible basis for saying that. So what we are suggesting is that you need a credible board which has people with some understanding of the issues and who would be able to guide the board during this period where they need to take fairly difficult and tough decisions.

You need to remember that three bids are completely different from each other. It is not that all three are saying that this is a price that they need to pay because one is saying we will take over the company, one is asking for a split in the company into two listed entities and the third is saying that they will inject some capital and it will be business as usual.

All three have different outcomes for the company, for the shareholders, for its future. All of them have different timelines which is fairly critical at this moment of time and therefore the board needs to take a decision.

It is not a straight forward decision because they have to weigh in all the other facts which are there and all the other pulls and pressures which are confronting the company at this moment.

I was reading the note that has come out by IIAS on Fortis. You have drawn inspiration from one of Bollywoods biggest movie Sholay and that famous dialogue that took place between Gabbar Singh and Kalia. You are drawing analogies on that when it comes to this entire saga that we are seeing at Fortis Healthcare. Who is the Gabbar in this situation, who is Kalia in the situation? I have read the note and your suggestion is also to form a committee to protect the minority shareholders interests.

The analogy was more in terms of a number of people. There were bidders and this dialogue from the movie resonated but what is critical is that the board clearly needs guidance at this stage.

We had already seen some charges which were voiced in the past. If the board is competent to do so and if they had people with sufficient experience, having an understanding of the issues, we might have taken a different call. But at this moment we feel that they could do with some guidance. It is clearly not possible for the board to instruct some directors on the board.

One, it is time consuming. The second thing which will happen is given the fact that there are four members of the board, if anyone appoints two people, you would say they now control 25% of the board which could have implications. I am not sure legally that could be argued but it could have implications in terms of change of control of the company. Therefore, what you need is someone who can guide, offer a steering hand to the board and which we felt would be an advisory committee which the board could appoint.

There is no reason to assume that some of the existing directors cannot be a part of that committee but the idea is that they will have to be able to look at the issues, negotiate, come up with its recommendations and it gives them credibility with investors and the boarder market at this stage.

We have already seen there was a new story which will subsequently be denied that IHHs bid will not be considered. The story is it is a non-binding bid and it will not be considered. The question is has the board actually engaged with them to figure out what will it take to convert it into a binding bid and if so, should they not have this dialogues with them? This is just a small example of what needs to be done. Meanwhile, it is getting complicated by the day.

You have also compared Fortis with Satyam. Why is that the case because Satyam has been perhaps one of the largest corporate scandals you have even seen in India. It led to the re-writing of the Companys Act rushed through, etc. You are comparing it to Satyam and also a company that the government had to finally take over and auction. Are you fearing that?

So it is. There are charges equating the company with Satyam which are yet unsubstantiated but what is important is to focus on the fact the company is living on grace. There are questions about the integrity of the financials which have been presented. You pretty much have promoters who no longer — at least on the surface — seem to be controlling the company and that is why we have said it.

But again, what we have highlighted is that what is important for the Fortis to move forward with a workable solution. Look at what happened in Satyam. A large part of it was that there was a board which was credible, which was able to run a process and the market kind of accepted that the board was acting in the best interest of the company and that is what is important at this stage. The company needs to ensure that the process they run is something which the market is comfortable with.

They have to ensure that there are no vested interest which are at play and it is a decision which they will take in the long-term interest of all shareholders, the doctors and the employees as well as the other stakeholders in the company.

Once the board takes this approval to appoint an independent consultant on the board, it goes back to the minority shareholders and this time around, the voting should be interesting because there is not only one or two parties that can influence this decision. The voting will be much more crucial and whether they are happy or not with the offer will be the key to watch out for?

Absolutely but two things you need to be borne in mind. First, the proposal will be presented to the shareholders. It is not that the board will say that choose between option A or B. The second thing to bear in mind is that as a healthcare company, your assets are the doctors. As the doctors feel this is going to be long-drawn and not in their interest, they could very easily move out from here to another hospital. Then you are just left with the building and nothing tangible which is of value to the patients. That is also why the board needs to take the right decision and they have one chance to do so. It is not that they can go back, find that the shareholders are not happy, then say okay we are going to negotiate again, we are going to bring in a second bidder at this stage that luxury is not available to the board.

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