Column : The Singhs get it right again

Written by MG Arun | Updated: Aug 1 2010, 03:20am hrs
When brothers Malvinder and Shivinder Singh, promoters of Fortis Healthcare, exited the race for Singapore healthcare chain Parkway Holdings, they pocketed a cool Rs 399 crore. The exit reminded one of a similar deal the Tatas struck with Coca-Cola in May 2007, when Tata Sons and Tata Tea sold their 30% stake in Energy Brands to the

US beverage major and made a profit of $523 million (around Rs 2,144 crore) on the deal. The Tatas executed the deal within a year of acquiring Energy Brandss Glacau in August 2006, while the Singh brothers carried the Parkway deal through in less than four months. Tata made use of an irresistible offer from Coke, using the money to retire a part of Tata Teas debt and acquire other beverage companies abroad. The Singhs decision, however, was driven by a surprise move by the Malaysian sovereign wealth fund Khazanah to acquire shares of Parkway at a price 6% higher than Fortis paid.

In both cases, it is sheer business sense that prevailed. One could say, the Singhs have been consistent in ensuring their heads ruled their hearts. They sold family silver Ranbaxy to Japans Daiichi Sankyo in June 2008, at a time when the generic play was being heavily impacted by stiff competition in the developed markets. The Indian company was also under stress from a slew of patent suits in the US. The Tatas, in contrast, persisted in their bid to acquire Corus in January 2007 for $12 billion, and won it in a bidding war with Brazilian steel maker CSN. Corus and its European operations continue to be a drag on Tata Steel, despite the firm taking stiff cost control measures, including mothballing a plant in the UK.

The Piramals also recently joined the Singhs and the Tatas to prove that in tough business times, an opportunity to cash out of a business should not be missed. The sale of Piramal Healthcares domestic formulations business to Abbott Laboratories will look justified, if one considers the value of the deal, pegged at nine times sales. At Rs 17,000 crore, the offer was too good for the Piramals to resist. Sterlites Anil Agarwal also showed restraint and business acumen when he backed out of a June 2008 deal to buy the operating assets of US-based Asarco for $2.6 billion. Agarwal put forward a new bid, with changes in certain components of the earlier bid, citing the melting down in metal prices, but eventually lost out to Grupo Mxico, which won the bid, backed by a US court. The tussle between Sterlite and Asarco landed up in court, but Agarwal must be relieved that he did not overpay and face the prospect of a demand glut and falling metal prices.

The Reddys of Dr Reddys Laboratories were not so lucky. They bought Germanys Betapharm in February 2006 for 480 million euros, only to find the company run into a string of troubles as the high-margin branded generics market turned into a low-margin volume play, with the introduction of government reforms. For the first time since then, the Reddys have now said the unit is turning around and making cash profits. But the 4-year wait had been agonising.

The Singhs have already said they will still keep up their hunt for more assets abroad, but what baffles experts like Navroz Mahudawala of Candle Partners is the whole rationale behind an overseas acquisition in the healthcare space.

While acquisitions within the home turf will accord synergies of operations and scale, managing an acquisition in the global space will be quite a challenge. Experts see the healthcare segment as a highly localised industry. There is little synergy to be realised through an overseas buy. When the Singhs announced the Parkway stake buy this March, eyebrows were already being raised about the price they paid. Now, they say the group has between $800-900 million in cash and a well-established line of credit, so it may not be long before they zoom in on another company. Shareholders, who gave a thumbs-up to the brothers when they exited Parkway, may not be happy with yet another overseas adventure. In August last year when Fortis acquired 10 hospitals from debt-ridden Wockhardt for around Rs 900 crore, it was hailed as a great move since it gave Fortis, largely restricted to the northern part of India, a pan-India presence, apart from providing operating synergies.

In healthcare, what really matters is building up credible operations over a longer period of time and creating a very strong local footprint. The Singhs have the wherewithal and the energy to take this forward, but they need to focus heavily on improving their existing domestic operations rather than jumping all too soon on to the global bandwagon.