Fortis Healthcare Ltd is blessed with an optimistic bunch of investors. Early this month, when the company announced its intention to offer to buy out a 75% stake in Parkway Holdings Ltd for 3.2 billion Singapore dollars (around Rs10,600 crore), its share price rose by 1%. On Monday, when it announced it was giving up its stake, by selling out to rival suitor Khazanah Nasional Bhd, its share price rose again, by as much as 7% before closing up 3%.
The positive sentiment is being attributed to the company walking away from a massive acquisition, with a neat profit of about Rs400 crore (not considering costs like fees and interest) on the transaction.
Also See Positive Sentiment (Graphic)
Fortis thought it could manage with a 25% stake in Parkway, and reap synergies between the two companies, but Khazanah had different plans.
While Fortis’ acquisition outlay ballooned, a bidding war meant it could increase further. Fortis had acquired the initial 25% stake through a wholly owned subsidiary but the 75% voluntary offer was made by a company in which the promoters held a 51% stake. Thus, it would have stretched the finances of Fortis and its promoters. In hindsight, walking away may well be a wise decision, depending on what happens next.
The Parkway acquisition was not an ordinary one. Fortis was planning to consolidate its existing business under Parkway as the holding company. Structure apart, the intention was to grow in size, combining Parkway’s 20 hospitals with its 34 hospitals and its Rs3,300 crore revenue with Fortis’ Rs940 crore revenue. The acquisition would have given it a presence in key markets in Asia. Fortis wanted to weld Parkway’s business expertise, international brand (critical to attract a global clientele) with its own ability to provide upscale services at a lower cost. The plan was ambitious and had it succeeded, could have made up for the huge cost involved.
What is left now is the vision, the experience from this transaction, a small but tidy profit and hope that more such opportunities will arise. The management said in a conference that they have many deals under consideration. That is a good thing. But Fortis had a first mover advantage in Parkway, and such a good bargain may be difficult to get. The key question is: Will any of these forthcoming acquisitions be as transformative and valuable as Parkway was? If they are, and also come at a cheaper valuation, losing the deal would have been worth it. Till that gets answered, an air of uncertainty hangs over Fortis’ global ambition, even as its Indian operations will continue to deliver. Investor focus will return to more mundane things such as performance and its June quarter results will set the next trigger for share valuations.
Graphic by Naveen Kumar Saini/Mint
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