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Fortis advised to keep silent on Parkway, buys more shares

Fortis advised to keep silent on Parkway, buys more shares
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First Published: Mon, May 31 2010. 06 30 PM IST
Updated: Mon, May 31 2010. 06 30 PM IST
New Delhi/Singapore: India’s Fortis Healthcare has been legally advised to keep silent on the Parkway Holdings issue for now, managing director Shivinder Singh said on a conference call on Monday.
Fortis Healthcare has bought more shares in hospital operator Parkway, setting the stage for a possible battle with Malaysian state investor Khazanah for the Singapore firm.
Fortis bought an additional 350,000 Parkway shares at an average price of S$3.1477 on the open market, raising its stake to 25.37% from 25.34% previously, Parkway said in a disclosure statement to the Singapore Exchange on Monday.
The purchase took place last week before Khazanah, which also owns about a quarter of Parkway, made a $835 million offer to gain majority control of the Singapore firm.
Analysts are speculating Fortis may make a counterbid for Parkway.
Parkway Holdings shares jumped 25% after Malaysian sovereign fund Khazanah offered $835 million for control of Singapore’s biggest private healthcare group, leaving India’s Fortis Healthcare to make the next move in a potential takeover battle.
Fortis’ original intention had been eventually to take control of Parkway, sources familiar with the matter have said, and the firm had raised its stake from an earlier 23.9%. Indian billionaire Malvinder Singh, the chairman of Fortis, had recently moved to Singapore to become chairman of Parkway.
Khazanah’s unexpected offer last week to lift its stake to 51.5% may force Fortis’ hand and make a takeover more expensive.
“Raising funds may not be a problem for Fortis, but it makes little sense to go in for such a huge fund-raising and stretch your balance sheet,” said Sapna Jhawar, an analyst at brokerage Sharekhan in Mumbai.
“The alternative and better option for Fortis at this point of time is to buy out other minority shareholders so that they remain in contention and not shell out too much cash,” she said.
However, under Singapore rules, Fortis would need to make an offer for the entire company if its holding crossed 30%.
Analysts said Khazanah’s offer was attractively priced.
“We expect possible counter offers from Fortis and remain negative on the deal as this could result in aggressive bidding by both Khazanah and Fortis, driving Parkway’s share price ahead of its underlying business fundamentals,” wrote Yew Kiang Wong, an analyst with CLSA in Singapore and said investors should sell.
On Friday, the CEO of Fortis said it was premature to comment on Khazanah’s bid. Indian newspaper Economic Times reported on Saturday that Fortis was considering launching a bid for Parkway and was discussing financing options with Singapore state investment firm GIC.
Highlighting the interest in hospital chains, a private-equity bidding war broke out for Australian hospital operator Healthscope on Monday, as the company received two more takeover approaches, both valuing the target at A$1.84 billion ($1.56 billion).
Funding Firepower
Fortis has plenty of access to funding. Controlling shareholders Malvinder Singh and his brother Shivinder have a combined fortune estimated by Forbes magazine at $3 billion.
One person with direct knowledge of the matter said bankers had already contacted Fortis with offers to raise as much as would be needed.
Earlier this month, Fortis agreed to raise about $85 million by issuing 22.35 million shares on a preferential basis to a unit of GIC. The shares cannot be issued until the proposal receives shareholder approval at a 9 June meeting.
Parkway, whose shares reached their highest in two and half years on their first day of trading since Khazanah’s bid, also operates hospitals in fast-growing India and China. Khazanah’s S$3.78 per share offer values Parkway at S$4.27 billion ($3 billion).
If Parkway took a controlling stake but Fortis opted to remain a shareholder, it could prove unwieldy, CLSA’s Yew noted.
“Should Khazanah succeed in gaining a controlling stake of 51.5% in Parkway, they will still end up with a ‘sticky´ major shareholder (Fortis) that could impede future growth strategies and policies,” he wrote.
Parkway shares reached S$3.79 a share on Monday, above Khazanah’s S$3.78 offer, their highest level since November 2007, before dipping to S$3.72.
While Fortis shares closed 7.6% higher on Thursday after Khazanah’s offer, they have fallen more than 4% since then, and were down 2.85% on Monday.
Lynette Tan, an analyst at DMG & Partners Research in Singapore, said Khazanah’s offer is attractive for shareholders as it is priced at 45 times her 2010 profit estimates.
Parkway shares, which have more than doubled last year, are up 29% so far this year, outperforming the benchmark Straits Times Index which is down about 5%.
Khazanah’s Integrated Healthcare unit named Singapore lenders DBS, Oversea-Chinese Banking Corp and United Overseas Bank Ltd as joint lead arrangers of acquisition financing for its offer.
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First Published: Mon, May 31 2010. 06 30 PM IST