• India’s Supreme Court was reported to have refused to lift the block to the takeover of Fortis Healthcare by IHH. This effectively halts IHH’s open offer to Fortis shareholders that would have brought its holdings in Fortis to above 50%.

• Recall that the court issued a status quo order on 14 December 2018, which prevented any of the parties involved in the dispute from taking any action until the matter can be resolved.

• The ruling came in a case filed by Daiichi Sankyo Co Ltd as part of its effort to recover US$500mil from Fortis’ founders and ex-owners Malvinder and Shivinder Singh.

• According to Bloomberg, the court held Fortis’ founders and ex-owners guilty of contempt of court, and said it could start similar proceedings against the company (Fortis). The court said contempt proceedings have been initiated against Fortis for violation of its 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 (Fortis has acquired RHT’s assets in India for a total cash consideration of circa RM2.7bil in January 2019).

• Recall that IHH became the controlling shareholder of Fortis upon the completion of the acquisition of 31.1% stake in Fortis on 13 November 2018.

• This triggered a mandatory takeover offer (MTO) to acquire up to 26% of the expanded capital from the existing shareholders of Fortis. The open offer was initially scheduled to commence in December 2018.

• We view this as slightly negative as the MTO continues to be suspended, delaying the takeover process until the court comes to a decision. Fortis is also at risk of being held guilty of contempt of court and we are unsure if this would lead to penalties. The court has set 3 Feb 2020 for the next hearing.

• According to our calculations, Fortis recorded an 8.1% YoY increase in its revenue in the Jan–Sep 2019 period. We have accounted for the 31.1% of Fortis’ earnings into our forecast.

• However, there will be minimal impact operationally as IHH remains a controlling stakeholder with management control, given that it currently has 4 board seats in Fortis.

• We maintain our HOLD recommendation on IHH Healthcare with an unchanged FV of RM5.50 based on DCF (WACC 8.3%; terminal growth rate 3.5%).

Source: AmInvest Research - 18 Nov 2019