Care Hospitals buyout: Max Healthcare gets no relief, HC appoints arbitrator

A single bench led by Justice Milind N Jadhav, on Wednesday, clarified that he did not intend to grant any status quo in the matter since third party rights had already been created.

The matter will next be heard on May 8 by the court, for the limited purpose of appraising the arbitrator under Section 17 of the Arbitration and Conciliation Act.

Max's Grievance

Max Healthcare filed a petition based on breach of “exclusivity" in Bombay High Court against Touch Healthcare Pvt. Ltd, Evercare Group Management Ltd and Quality Care India Ltd under the Arbitration and Conciliation Act, 1996 seeking interim measures to preserve its “contractual rights".

Quality Care is the company that operates Care Hospitals, while Touch Healthcare and Evercare are shareholders in Quality Care. Evercare Group Management is owned by Evercare Healthcare Fund, which is managed by US private equity firm TPG.

Also Read: Max Healthcare Outweighs Manipal's AMRI Bid By Rs 900 Crore In Takeover Tussle: Report

Max Healthcare and Touch Healthcare had signed a term sheet for the sale of hospital chain Care Hospitals, which is owned by Quality Healthcare. Touch Healthcare, in turn, owns 96% stake in Quality Healthcare. The Max offer was said to be valued at Rs 3,700 crore and the offer included an option on the Bangladesh assets, where Care Hospitals would be valued between Rs 5,500 and Rs 6,500 crore. However, TPG allegedly ignored Max’s bid and favoured PE giant Blackstone’s improved offer for Care Hospitals. Blackstone’s offer was about 15-20% higher, reports The Economic Times.

Max's grievance was that while Touch Healthcare had signed a term sheet, it proceeded with a different offer from U.S.-based private equity firm Blackstone. According to Max Healthcare, Touch Healthcare executed an agreement with Blackstone that submitted a higher bid and signed a definitive agreement for acquiring Care Hospitals on April 11, before the expiration of its terms with it on April 12.

The Case

Max’s petition claimed contractual rights arising from the binding obligations of Care Hospitals and TPG as per the term sheet that Max signed with Evercare on March 16, 2023.

Max and TPG had entered into an exclusive deal for bilateral negotiations in March, after disagreements with other potential suitors over Care’s valuation and international presence, in which Max had given a non-binding offer to TPG within the stipulated six-week window for a buyout.

As per various media accounts, Max was aiming to increase its pan-India presence as Care Hospitals has a strong South Indian footprint. In November, KKR and Singapore state investment firm Temasek, as well as Max Healthcare, were competing to acquire Care Hospitals in a potential deal valued at more than USD 1 billion (about Rs 8,200 crore). Blackstone and CVC Capital Partners were also shortlisted.

Max Healthcare's contention

Max Healthcare submitted that the term sheet had certain clauses, which by construction, are binding on both the parties. First, an exclusivity agreement between both parties and second, an agreement that gave the buyer the right to execute a sale and purchase agreement at its instance. The agreement was supposed to be executed by April 12.

Janak Dwarkadas, senior counsel appearing for Max Healthcare argued that the term sheet signed between itself and Care Hospitals was binding on them, adding that Touch Healthcare has taken an inconsistent position throughout the period of the term sheet.

Dwarkadas, while arguing for Max Healthcare said that they agreed to marry someone else while they were engaged to marry us.

Touch Healthcare's Response

Meanwhile, Touch Healthcare's counsel told the court that the term sheet is a non-binding agreement and must be treated as such. The counsel further argued that Max cannot claim any exclusivity, unless a specific agreement is executed between them. Moreover, Max Health had the option to execute the agreement by April 12, which it failed to do. Touch Healthcare has already executed a share purchase agreement with Blackstone, the counsel added.

The Court's Observation

The Bombay High Court didn't agree with the argument that the term sheet was binding. The term sheet should be read as a whole and not in parts, the court remarked. It further refused to consider the merits of the matter. According to the court, there is no prima facie evidence to prove that the agreement was binding upon Touch Healthcare and therefore requires no relief.

The order published on Wednesday said, “It is clarified that the court has not gone into the merits of the case."

Justice Jadhav, however, clarified that he did not intend to grant any status quo in the matter since third party rights had already been created.

The court noted;

“It is clarified that this Court has not gone into the merits of the matter.... the learned sole Arbitrator is requested by the Court to dispose of the Section 17 proceedings within a period of two weeks from today. Both parties have consented to appear before the learned sole Arbitrator on Monday, 08th May 2023 for fixation of the schedule for hearing the Section 17 proceedings."

Eventually, the court appointed Justice SJ Kathawalla as sole arbitrator in the dispute and suggested the parties approach the arbitrator for raising any contentions arising from the dispute, reports Live Mint.