Fortis says IHH Healthcare will invest ₹4,000 crore at ₹170 per share in the company that operates about 30 private hospitals
Mumbai: Malaysian-Singaporean private healthcare group IHH Healthcare Berhad is set to acquire control of Fortis Healthcare Ltd after being named on Friday as the preferred bidder to take over the troubled hospital operator, India’s second largest.
The Fortis board unanimously accepted a binding offer made by IHH, through its wholly owned subsidiary Northern TK Venture Pte. Ltd, to invest ₹ 4,000 crore by way of preferential allotment at an offer price of ₹ 170 per share, Fortis said.
IHH’s rival bidder TPG-Manipal had made an offer of an investment of ₹ 2,100 crore at a price per share of ₹ 160, Fortis said.
IHH Healthcare is the world’s second largest healthcare group by market capitalisation, operating 49 hospitals in nine countries.
Fortis, which runs 34 hospitals in India and abroad, has been at the centre of a protracted bidding war amid an official investigation into allegations of irregularities against founders Malvinder and Shivinder Singh, both of whom deny any wrongdoing.
On 9 July, Mint first reported that IHH Healthcare is likely to acquire control of Fortis Healthcare Ltd with a binding offer to buy at least 51% in the cash-strapped hospital operator.
On Friday, IHH said that upon completion of the acquisition, it will hold a minimum of 31.1% and a maximum of 57.1% equity interest in Fortis Healthcare.
For this, IHH will invest ₹ 4,000-7,400 crore in newly issued Fortis Healthcare shares. This will infuse equity in Fortis, help in the acquisition of RHT Health Trust, a Singapore subsidiary of Fortis, and provide an exit to private equity investors of SRL, a healthcare and pathology lab operator in which Fortis Healthcare own 56%.
It will then invest another ₹ 3,300 crore as mandatory offer in the form a cash exit option to 26% of shareholders, again at a price of ₹ 170 per share.
As an acquisition of control in Fortis Healthcare will automatically change the control of Fortis Malar Hospital Ltd, a subsidiary of Fortis Healthcare, IHH will make a separate cash open offer to acquire 26% equity interest in Fortis Malar Hospital Ltd. The open offer for Fortis Malar, a multi super-specialty corporate hospital in Chennai, is at ₹ 58 per share, valuing the company at ₹ 109.2 crore.
“This win-win combination will make IHH the leading healthcare services provider in India, while giving Fortis Healthcare and its stakeholders certainty and clarity on the future of the group," Dr Tan See Leng, managing director and CEO of IHH, said.
“With a clear and holistic strategy in place, we have developed a 100-day turnaround plan to stabilise Fortis Healthcare, which will pave the way for Fortis Healthcare to realise its full potential in the long run."
The acquisition values Fortis Healthcare at ₹ 8,880 crore, with the offer price of ₹ 170 apiece, representing a 22.3 times multiple of Fortis Healthcare’s earnings before tax for the 12 months ended 31 March 2018, and 19.5% and 15.3% premium to the closing share price on 12 July 2018 and 60-day volume weighted average price, respectively.
“Depending on the acceptance levels for the Fortis Open Offer and Malar Open Offer, the total funding required for the transaction will be between ₹ 4,000 crore and ₹ 7,400 crore, which will be funded through existing cash reserves and debt facilities," said the release.
Bhavdeep Singh, CEO of Fortis said, the bid by IHH offered more “certainty and simplicity", adding that there is not much risk of IHH pulling out of the deal.
“The board has followed the due process. Equally important it has been transparent throughout. Which is why the outcome has been welcomed by investors," said Amit Tandon, founder and CEO of proxy advisory firm Institutional Investors Advisory Services.
The acquisition will expand IHH’s footprint in India. Fortis Healthcare operates a network of 34 hospitals across India and internationally with a capacity of over 4,600 beds, employing more than 2,600 doctors and 13,200 support staff who catered to 26 lakh patients in FY2018.
“IHH is also supportive of Fortis Healthcare’s announced plan to acquire RHT Health Trust, which is listed in Singapore and currently has a portfolio of 12 clinical establishments, four greenfield clinical establishments and two operating hospitals," said the release.
The Fortis open offer is expected to commence in August or September 2018 subject to certain conditions, including regulatory approvals from the Competition Commission of India, Securities and Exchange Board of India and the Reserve Bank of India, and close by the third quarter of 2018.
Citigroup Global Markets India Pvt Ltd, Deutsche Bank Group, HDFC Bank Ltd and HSBC Bank are acting as financial advisors and joint managers to the open offers for IHH.
At present, public shareholding in Fortis Healthcare is 99.3% and 37.1% in Fortis Malar. Fortis Healthcare holds 62.4% in Fortis Malar, 56.5% in SRL and 27.6% in RHT (Singapore listed). Post the acquisition of Fortis Healthcare by IHH Healthcare and the open offer by IHH in Fortis Malar, the public shareholding in Fortis Healthcare will go down to 42.9%-68.9% (depending on the amount of shares tendered by public shareholders in the open offer). Post the deal, the public holding in Fortis Malar will come down to 11.1%- 37.1%. Fortis Healthcare will end up holding 62.4%-88.4% in Fortis Malar, while Fortis Healthcare’s holdings in SRL and RHT will not change.
Dr. Ranjan Pai, MD & CEO, Manipal Group, said, “We respect the Fortis Healthcare board’s decision and wish IHH well. Manipal actively reviews a range of opportunities across the healthcare sector. In our view, our own offer for Fortis reflected a comprehensive analysis of the risk and reward of the business. Healthcare in India is poised for rapid growth and, with support from TPG and our other financial partners, Manipal will continue to grow, outperform the sector and maintain our position as one of India’s most trusted and valued providers of healthcare."