Aster DM Healthcare’s recent announcement of the separating its India and Gulf Cooperation Council (GCC) has received a positive node from the global and domestic proxy advisory firms like – Glass Lewis IiAS, SES and ISS. SES said that the transaction is in line with compliance and they do not identify any major concerns regarding the proposed segregation of the India and GCC business.
Aster DM Healthcare was established by Dr Azad Moopen in 1987 as a single clinic in Dubai, UAE. The company has since grown to become a leading integrated private healthcare provider, offering a full spectrum of primary, secondary, tertiary and quaternary healthcare services that cater to the diverse needs of its patients.
In India, Aster has a substantial and growing network in 5 South Indian states through its 19 hospitals, 13 clinics, 226 pharmacies and 251 patient experience centres. In the Gulf, Aster has developed a strong reputation and presence, with 15 hospitals, 118 clinics and 276 pharmacies across the UAE, Saudi Arabia, Qatar, Oman, Bahrain and Jordan.
In November, the company announced the separation of the India and GCC businesses to unlock value for the shareholders by allowing both the India and GCC businesses to adopt a market-focused strategy and create sustained long-term growth. Under the separation plan, a consortium led by Fajr Capital has entered into a definitive agreement to acquire a 65% stake in the ownership of the GCC business, Aster DM Healthcare FZC. The Moopen family will continue to manage and operate the GCC business retaining a 35% stake. In India business, Promoters remain committed to the growth plans and will retain 42% stake in the company.
As per the SES report, company explained the rationale behind promoter’s association with the hived off entity stating that “On the request of the bidder for promoter participation, at the closing of the transaction, the Moopen family (promoters) will retain a 35% stake in the GCC business. This is for continued promoter participation in the GCC business and to ensure its sustainability following the segregation of the GCC business from India business.”
The company justified the reported valuation of the company, presently in the market stating (i) Company’s prevailing complex structure; (ii) relative market size of the India and GCC businesses; (iii) insurance domination in GCC business, Indian investors and analysts are reluctant to cover the Company due to the GCC business. The separation of India and GCC business will unlock the value for the existing shareholders and provide the strategic advantage and flexibility of having exclusive and focused board and management.
Aster has proposed to reward its shareholders through the sale proceeds of the transactions by distributing a sizable portion, i.e. 70%-80% of the proceeds as dividend. The remaining proceeds will be retained as reserves and to pursue growth opportunities from time to time. On this, SES believes that as a Proxy Advisory it cannot sit in judgment of the Management’s decision regarding capital allocation strategies. Hence, no major concern is identified in this regard.
The valuation advice was offered by EY and PwC, while ICICI Securities provided a fair opinion on the valuation guidance. Baker & McKenzie LLP served as Affinity’s legal representation for the transaction.
IiAS in its report said, “The GCC and India businesses have separate business dynamics and separating the two businesses is in the long-term interest of shareholders. Thus, we support the resolution. Further, the company has announced that it proposes to pay out 70% to 80% of the upfront proceeds (USD 903 mn), to shareholders – which assuages a major concern.”
