Fortis Healthcare Ltd has raised the bidding stakes, with a Singapore $3.2 billion (around Rs10,640 crore) counter offer to buy the 75% it does not own in Parkway Holdings Ltd. Khazanah Nasional Bhd’s had initially offered S$1.2 billion to hike its stake from 24% to beyond 50%. Either offer, if successful, will give the acquirer control. Fortis’ offer at S$3.80 a share barely beats the S$3.78 a share offered by Khazanah.

Parkway’s independent directors had recently recommended that shareholders should reject Khazanah’s offer. They based their recommendation on Morgan Stanley Asia’s opinion, which had said the offer price was reasonable but not compelling. Besides, the acquirer was getting control with only a partial offer. Fortis’ offer price is not compelling either, by that yardstick, but it is offering to buy out all shareholders.

Also See Acquisition Tussle (Graphic)

Fortis’ move now puts pressure on Khazanah to up the price and the size of the offer. Khazanah is a majority shareholder in a key Malaysian hospital chain, a Malaysian medical university and also has a minority stake in India’s Apollo Hospitals Enterprise Ltd. Through Parkway, it wants to expand its presence in Asia and secure growth. Apart from Singapore, Parkway is present in countries such as India, China, Malaysia and Brunei.

The acquisition is equally important, if not more, for Fortis. It wants to create a consolidated healthcare group by combining its Indian operations with that of Parkway. The combined entity will seek to grow in markets such as Indonesia, China, Hong Kong, Thailand and the Gulf countries. It will combine Parkway’s international brand recognition and business expertise with Fortis’s ability to provide similar services at a lower cost. Economies of scale could lead to advantages in other operating areas too.

The acquisition is being routed through RHC Healthcare Pte Ltd, in which Fortis owns a 49% stake and the rest by the promoter group. Thus, around half of the acquisition cost (Rs5,200 crore) will be attributable to Fortis. The company recently raised around Rs460 crore through a convertible bond issue, but would evidently have to raise debt to fund the acquisition.

Parkway is not coming cheap, with its enterprise value to Ebidta (earnings before interest, depreciation, tax and amortization) at 26 times, according to the Morgan Stanley report, compared with the average of 14 times for comparable firms. The sample included an outlier with a multiple of 37 times: Fortis. The acquisition will not skew its valuation, therefore. Investors’ focus will shift to the counter-bid effect and Fortis’ funding plans.

Graphic by Yogesh Kumar/Mint

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