MUMBAI - A hospital is no place for a feeble board. The last non-independent director of India’s Fortis Healthcare was ousted by shareholders on Tuesday after three other members facing the same fate resigned a day earlier. The vote is a rebuke of the decision to sell a minority stake to local tycoons over four other offers, including a full takeover valuing the business at $1.3 billion. It's time for a second opinion.

Nearly 88 percent of votes cast were in support of removing Brian Tempest as a director after two foreign investors said that he and his peers had not met their fiduciary duties. It means the Fortis board now has just four members, all independents appointed in recent weeks.

The revolt suggests investors would have snubbed the choice to bring in Indian motorcycle tycoon Sunil Munjal and Anand Burman of consumer goods maker Dabur. They wanted to inject 18 billion rupees, or about $260 million, into the company using preferred equity and warrants. It’s unclear why a bidder with little experience running hospitals won support from a majority of Fortis directors.

Higher offers have been put forward. Manipal Hospitals, a local rival, and buyout firm TPG Capital have raised their joint binding bid, which amounts to a full takeover, to 180 rupees a share. Malaysia’s IHH Healthcare is another strong contender, offering a cash injection at 175 rupees per share. These are as much as 24 percent higher than where Fortis shares are trading.

Over recent months, multiple suitors have run the rule over Fortis, which has been hit by fraud investigations. Given the company’s fragile liquidity situation, the board should now give serious bidders limited extra time to do their homework and submit binding offers. A recommendation following guidance from financial and legal advisers can then follow.

Though shareholders successfully expressed themselves, the disarray puts Indian corporate governance in a bad light. Fortis can remedy the situation by inviting in a qualified owner prepared to take a longer-term view, especially now the board has no one left with ties to the business. A fresh review may lead to a better prognosis.

CONTEXT NEWS

- Fortis Healthcare shareholders voted overwhelmingly in favour of ousting its only remaining non-independent director, the company said on May 23.

- Almost 88 percent of votes cast were in support of removing Brian Tempest from the board. Three other non-independent directors quit ahead of the shareholder vote for personal reasons after two major Fortis shareholders said the board had not met its fiduciary duties.

- Eastbridge Capital and Jupiter India, which hold a combined 12 percent of the company’s shares, had called for Tuesday’s vote.

- On May 11, Fortis recommended an offer from Indian motorcycle tycoon Sunil Munjal and Anand Burman of consumer goods maker Dabur to inject 18 billion rupees ($263 million) into the company via preferential equity shares at 167 rupees each and warrants at 176 rupees each.

- The company had received four other offers, including a full takeover bid.

(Editing by Jeffrey Goldfarb and Katrina Hamlin)

© Reuters News 2018