Mumbai: Malaysia’s IHH Healthcare Bhd is likely to acquire control of Fortis Healthcare Ltd with a binding offer to buy at least 51% in the troubled Indian hospital operator for ₹ 4,700-5,400 crore, two people aware of the bid details said.
IHH Healthcare outbid TPG-backed Manipal Health Enterprises Ltd, the only other contender for Fortis, by placing a higher per share offer for the promoters and also offering to buy out Fortis’s non-promoter shareholders at a 10-15% premium to the agreed purchase price.
A successful bid will allow IHH Healthcare, Southeast Asia’s largest hospital operator, to expand its presence in India rapidly. IHH Healthcare has pursued Fortis despite the discovery of financial irregularities at the hospital operator after founders Malvinder Singh and Shivinder Singh left the company earlier this year after losing control due to mounting debt.
“The IHH Healthcare offer is higher than Manipal’s offer. But above all, IHH has agreed to make an open offer at a premium to the average market price (weighted average market price for 60 trading days preceding the announcement) as well as the price offered to the promoters," said one of the two people cited above, requesting anonymity.
“Additionally, the plan given by IHH Healthcare for acquisition of RHT Health Trust (a Singapore-listed business trust that owns some of Fortis’s assets) is somewhat better than Manipal’s offer," this person said.
IHH Healthcare will first buy around 25% in Fortis through a mix of direct acquisition and preferential allotment. This will cost around ₹ 2,200-2,400 crore. After that, IHH will make an open offer to buy at least an additional 26% in Fortis, which will involve an investment of about ₹ 2,500-3,000 crore, according to the latest offer.
The Malaysian company has also readied an acquisition plan for RHT Health Trust separately through a secondary infusion and is ready to disclose the source of its funding to avoid further controversies, added the first person.
“We believe our bid best addresses the short-term liquidity needs and long-term strategic requirements of Fortis. We look forward to a decision by the Fortis board and will make an announcement if there are any material developments," IHH said in response to a query.
A spokesperson for Fortis said “as stated in the exchange filing, the board is in the process of finalizing the bids."
In comparison, TPG-Manipal has offered to infuse ₹ 2,100 crore in cash into Fortis, according to a third person with direct knowledge of the matter. This will be used to buy out RHT Holdings, which is valued at ₹ 4,600 crore.
Fortis holds a 29% stake in RHT. By keeping Fortis’s stake in RHT and a debt of around ₹ 1,000 crore on its books, RHT’s actual valuation comes to between ₹ 2,200 crore and ₹ 2,500 crore.
“TPG-Manipal will pay cash and borrow a bit of money to clear RHT," said a third person with direct knowledge of the TPG-Manipal offer, requesting not to be named.
Manipal-TPG had earlier proposed to infuse ₹ 2,100 crore through a preferential allotment at ₹ 180 a share, which would allow it to own 18.4% in Fortis at a valuation of ₹ 9,403 crore. It also plans to buy out Fortis unit SRL Diagnostics’s PE investors for ₹ 1,113.4 crore, the person said.
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TPG-Manipal is also in talks with a couple of large pension funds to give an exit to some of the existing institutional shareholders such as East Bridge, and Yes Bank, said the third person cited above.
“We have given a proposal that makes logical sense. It is a tough call for the board. We will be fine with the decision that the board takes," Ranjan Pai, chairman of Manipal said in response to a query.
The newly constituted Fortis board had set tough conditions for the potential bidders. The contender will have to make a minimum investment of ₹ 1,500 crore in Fortis Healthcare by way of a preferential allotment, apart from having a plan for funding the acquisition of RHT Health Trust and one for providing exits to non-promoter shareholders. The bidders will also have to disclose their source of funding.