Mumbai: After months of negotiations over valuation, Mumbai-based Wockhardt Hospitals Pvt. Ltd on Monday said it has agreed to sell 10 of its 17 hospitals to Fortis Healthcare Ltd for Rs909 crore.
The deal involves eight hospitals in Bangalore, Mumbai and Kolkata, which together generated annual revenue of around Rs313 crore, and two hospitals in Bangalore and Kolkata that are under construction.
For Fortis, the country’s second largest hospital chain, the acquisition will add about 1,900 beds to its existing 3,300 beds and the number of hospitals under its fold to 38. Those numbers are second only to Apollo Hospitals Ltd, which has a capacity of some 9,000 beds.
Expansion mode: (from left) Fortis chairman Malvinder Singh, managing director Shivinder Singh and Wockhardt chief Habil Khorakiwala during the announcement of the Fortis acquisition. Santosh Hirlekar / Mint
Fortis, promoted by chairman Malvinder Mohan Singh, former chief of Ranbaxy Laboratories Ltd, and his family, had at the time of its initial public offering (IPO) in 2007 said it would have at least 40 hospitals with a bed capacity of about 5,200 by 2010.
Fortis said it will fund the purchase through a combination of debt and equity. It will use around Rs350 crore raised through the IPO and the rest would be funded by debt of Rs250 crore and proceedings from a proposed rights issue.
“It’s a good deal for Fortis as it gets entry to important new markets with best infrastructure and running hospitals,” said Monika Sood, a healthcare infrastructure adviser with Delhi-based consultancy Feedback Ventures Ltd.
“Though Fortis needs to infuse some fresh funds to some of these hospitals, the price calculated on the basis of the 15-20% margin (in the hospital business) from a ready revenue of at least Rs313 crore is a fair valuation,” Sood added.
IL&FS Financial Services Ltd was the exclusive financial adviser to Wockhardt Hospitals on this transaction, while Religare Capital Markets Ltd advised Fortis.
Wockhardt Hospitals, promoted by the Mumbai-based Khorakiwala family, founders of troubled drug firm Wockhardt Ltd, will continue to be in the sector with a remaining seven hospitals, including its own in Delhi. The other hospitals, under management contracts with different owners, are located in Rajkot, Surat, Nashik, Nagpur and Hyderabad. In addition to these, Wockhardt Hospitals runs three community hospitals in Bhavnagar, Goa and Vashi in Navi Mumbai.
Fortis shares climbed 6.57% on Monday to close at Rs116.05 on the Bombay Stock Exchange (BSE), and Wockhardt Ltd’s stock rose 8.87% to Rs176.80.
Wockhardt group chairman Habil Khorakiwala said on Monday: “Wockhardt Hospitals plans to expand its reach into four more cities over the next three years. This plan would include a multi-specialty hospital proposed in Mumbai Central within a year.”
The unsold Wockhardt hospitals will retain their association with partners such as Harvard Medical International, a self-supporting, not-for-profit subsidiary of Harvard Medical School.
But at least 12 key managers, including chief executive Vishal Bali, will move from Wockhardt Hospitals to Fortis once the business transfer agreement is executed by December, said Fortis managing director Shivinder Mohan Singh, Malvinder Singh’s brother.
Wockhardt Hospitals needed the divestment as it had raised huge debt in the past couple of years for expansion. The hospital chain, which had to recall an IPO in early 2008, had also used money that the promoters had raised by pledging shares of Wockhardt Ltd through short-term loans to pursue its expansion.
Though the hospital chain planned to infuse investments from institutional investors through private placements, the plan did not work as the management’s price expectation didn’t match with that of the potential investors.
Khorakiwala had in April told Mint that Wockhardt Hospitals expected some private equity investments over the next two-three months.
Meanwhile, Wockhardt Ltd, the country’s sixth largest drug maker by sales, had referred itself for a corporate debt restructuring with its lenders in June due to mounting debt worth Rs1,414 crore. It also had to divest three of its units—its German pharma business, Esparma GmbH, an animal health venture and a nutrition business—for undisclosed valuations.