https://www.bloomberg.com/news/articles/2018-01-28/billionaire-singh-brothers-accused-in-lawsuit-of-siphoning-money
Long story short, the news was bad for the case of special situation (at least the position I was taking). In addition to the earlier case of Japanese investor (Daiichi Sankyo) suing Singh brothers for the fraud. This was an additional nail to the coffin which would prevent divestment of any of their personal assets (i.e Fortis or Religare shareholding) to raise funds for the RHT assets buyout.
I quickly sold my stake that morning. The basis was that while the Japanese investor could have their case overturned, American investors being involved added a whole new conundrum to the game. This was a measured probability that the acquisition funds was very unlikely to be found in the next 1 year time frame.
The red flags
It didn't take a genius to figure out other red flags in this deal:
A. Delayed payments of leasing fees by Fortis Healthcare
B. Double lawsuits that potentially block any capital raising required for the acquisition by independent parties (First the Japanese, followed by the Americans)
C. The case of fraud and question of character
Everything begun collapsing pretty quick
1. Around Mid Jan - RHT Healthtrust reported to the regulators that the delayed payments would be given as of 31st January.....sounds positive? It turned out only 1/3 of the payment was received. If someone could barely find money to pay his water bill, would you trust his agreement to buy your house?
2. The Ranbaxy deal was touted as "Dirty Medicine" by Fortune Magazine. I leave you to go and figure out what that means. In any case, with the impending lawsuit ongoing, courts tend to stick to the earlier judgments. As I learned in law school, if judges overturned each other cases like a pancake machine - the country would be pretty chaotic.
Turns out that yesterday, news broke the Delhi court upheld the case "Malvinder Singh and Shivinder Singh must pay Daiichi Sankyo Co. 35 billion rupees ($550 million) awarded in an arbitration over the sale of a drugmaker controlled by the brothers, an Indian court ruled."
More cash problems? Still think he can pay for your house?
3. Lastly if someone tells you somebody can't be trusted. You may say hmm, this two may have disagreements and bad blood, I should reserve my judgement till I meet him myself. If a couple of days later, someone from far away, tells you this chap can't be trusted - I think it begins to form a pretty complete picture of what he is.
Like Warren Buffett said - I look for 3 things in an individual, Talent, Energy and Integrity. Unfortunately, if he does not have the 3rd one, let's not even discuss the first two.
As of today. RHT price trades at 3.63% below my sale price. I may be right, I may be wrong - but nothing beats a peace of mind. Best to move on.
