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Sale of Fullerton Healthcare may be derailed by co-founders

Goola Warden
Goola Warden7/29/2021 2:51 PM GMT+08  • 5 min read
Sale of Fullerton Healthcare may be derailed by co-founders
Fullerton Healthcare's sale to a third party may be de-railed by its former CEO and deputy CEO who co-founded the company
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David Sin, Michael Tan and Daniel Chan were a trio with grand aspirations to build a leading regional healthcare company. However, their common ambition, instead of soaring like a phoenix, is now stymied by a legal battle pitting Sin against his two long-time partners.

Sin is founder of SIN Capital, and around a decade ago, he invested in the then-fledgling healthcare company, Fullerton Healthcare Corp (FHC), which was started by Tan and Chan, two former doctors with the Parkway group.

On July 21 this year, FHC’s board received an unsolicited, non-binding offer from Platinum Equity Advisors International. The board, including its independent directors, chairman Michael Lim, as well as Sin, accepted Platinum’s offer, which was valid till July 23. However, Tan and Chan abstained from voting. They have said through their lawyer and in a defence statement that the acceptance was “of no legal effect and not binding on any shareholder”.

Tan and Chan claim they have veto rights to the offer. Sin and the other directors say they do not. Sin and Tan, who bonded as weekend soccer buddies, are now instead embroiled in a dispute over FHC.

Back in 2016, FHC, by then already a high-profile healthcare play, tried to list on Singapore Exchange (SGX), amid a rapid regional M&A spree.

However, the IPO was waylaid by a number of poison pen letters purportedly written by doctors unhappy about its commercial strategy being at the expense of the network of panel doctors, which contributed a significant proportion of its Singapore earnings.

During the IPO period, Tan and Chan were CEO and deputy CEO respectively. Former investment banker Sin, meanwhile, was the chairman, focusing on M&A, fund-raising and investor relations. The IPO was aborted, but whispers of another listing attempt floated every now and then.

More recently, Project Phoenix, which is about selling FHC to a third party, was underway too. Even before the offer from Platinum, FHC received an offer in 2020 for the company from Temasek Holdings.

On or around Dec 18, 2020, FHC’s board approved a sale process of up to 100% of FHC. Two months later, with all directors in agreement, this was modified to 100% of FHC.

Between 2013 and 2015, Sin’s vehicle, SIN Capital, including funds managed by China Investment Corp, invested hundreds of millions in FHC. Subsequently, after the failed IPO, China’s insurance giant Ping An, via its subsidiary Xiang Zhou Unicorn, pumped in some $170 million.

Sin, the plaintiff in a soon-to-be-heard suit, through a couple of vehicles holds around 59.6% of FHC. In contrast, Tan holds 13.6% and Chan 3.2%. Other shareholders include SL Investments with 1.8%, a unit of Ping An with 17% and employees of FHC with 4.7%.

According to court documents filed by Sin, 53 potential bidders were contacted, of which 38 potential bidders signed non-disclosure agreements and were given a good look into FHC’s numbers. Nine non-binding offers were received. Among them were KKR, Warburg Pincus, Platinum Equity and Coalition Capital.

Sometime in June, the final binding bids were submitted by Warburg Pincus and Coalition Capital and were being deliberated by FHC’s board. The price tag remains confidential, although all the bids were likely comfortably above $1 billion.

SPAC offer

In April this year, amid the SPAC frenzy, FHC’s board gave itself more options by exploring a listing via one of these acquisition companies. Several SPACs expressed interest, and on or around May 11, 2021, a third-party SPAC listed on the New York Stock Exchange, and sponsored by a New York-based hedge fund, submitted a preliminary offer.

Compared to the final bids by Warburg Pincus and Coalition Capital, the SPAC offer was based on an enterprise value (EV) of around 8% higher, and a proposed equity value around 4% to 16% higher.

See also: Fullerton Healthcare taps Bank of America for sale

However, on June 11, the third-party SPAC decided not to proceed with its bid.

According to Sin’s complaint, Tan and Chan reneged on what had been agreed upon and was approved by the FHC board (including themselves).

Sin claims that the duo unilaterally told FHC’s clients and potential bidders on numerous occasions that they do not want to sell their shares and that they intend to maintain their management roles in the company.

Specifically, based on court documents, Tan and Chan told Platinum that they were forming their own coalition of potential bidders, and invited them to join their coalition — something they did not tell FHC’s board, Sin’s lawyers claim.

In turn, the two doctors say they are not obliged to agree to any proposal for sale of their shares, and that there is no regulation or fiduciary duty stopping them from communicating with potential buyers, or forming their own coalition of potential buyers.

Sin maintains that directors have a fiduciary duty to shareholders, and the defendants have breached this duty by acting in their own interests rather than the interests of FHC, its shareholders and its employees. Tan and Chan have placed themselves in a position of conflict of interest, the plaintiff’s court documents say.

Despite a long history of partnership, Sin appears to be moving ahead with his suit.

A directions hearing is scheduled for Aug 24.

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