For­tis board to pick best of­fer on April 19

While IHH says For­tis has de­clined to en­gage, For­tis clar­i­fies no de­ci­sion yet

Business Standard - - FRONT PAGE - SOHINI DAS & ANEESH PHADNIS

The board of di­rec­tors of For­tis Health­care will meet on Thurs­day to de­cide on in­vest­ment of­fers re­ceived by the hos­pi­tal chain.

For­tis has re­ceived two bind­ing of­fers — a re­vised of­fer from TPG-backed Ma­ni­pal Health En­ter­prises and a joint bid by Hero En­ter­prise In­vest­ment Of­fice and the Bur­man fam­ily of­fice — and a non-bind­ing of­fer from Malaysia’s IHH Health­care Ber­hard.

While IHH said on Mon­day For­tis had de­clined to en­gage with it on a takeover of­fer, cit­ing bind­ing agree­ments with other par­ties, For­tis in­formed the stock ex­changes in the evening that its board had not taken a de­ci­sion yet.

IHH, the world’s sec­ond-largest health­care group by mar­ket cap­i­tal­i­sa­tion, had placed a non-bind­ing ex­pres­sion of in­ter­est be­fore the For­tis board on April 11, in which it had val­ued the com­pany at ~160 a share. The of­fer had come a day af­ter TPG-Ma­ni­pal tweaked its of­fer to ~155 a share to soothe in­vestors’ con­cerns.

IHH had, how­ever, said its of­fer was sub­ject to “sat­is­fac­tory com­ple­tion of a lim­ited due dili­gence”.

For­tis has, mean­while, got a ~1.5 bil­lion bridge loan from a non-bank­ing fi­nan­cial com­pany to run its op­er­a­tions smoothly till it finds a buyer.

In a press state­ment is­sued ear­lier on Mon­day, For­tis said, “Last week, For­tis re­ceived two bind­ing of­fers — one is a re­vised of­fer from MHEPL and the sec­ond is a joint bind­ing of­fer from Hero En­ter­prise In­vest­ment Of­fice and the Bur­man fam­ily of­fice — ex­press­ing in­ter­est in the com­pany. In ad­di­tion, the com­pany has also re­ceived a non-bind­ing ex­pres­sion of in­ter­est from IHH Health­care Bhd.”

The board of di­rec­tors would be meet­ing this week “to look at all el­i­gi­ble op­tions and de­ter­mine the fu­ture course of ac­tion that is in the best in­ter­ests of the com­pany, em­ploy­ees and share­hold­ers”, it stated.

A source close to the de­vel­op­ments said, “The board can­not re­ally en­ter­tain non­bind­ing bids at this stage, as that would drag the process fur­ther.

Also, the real value of the com­pany is in RHT (which owns the in­fras­truc­ture of For­tis Health­care), and it is crit­i­cal to buy back these as­sets. Pay­ment to RHT is al­ready de­layed. The Sin­ga­pore-listed RHT would pre­fer a buyer that would hon­our the agree­ment be­tween For­tis and them.”

In Fe­bru­ary, For­tis and RHT Health Trust had en­tered into a de­fin­i­tive agree­ment to ac­quire RHT’s as­sets for an en­ter­prise value of ~46.5 bil­lion, in­clud­ing debts of ~11.52 bil­lion, five years af­ter the hos­pi­tal chain had spun off these as­sets to the busi­ness trust. RHT’s port­fo­lio com­prises two hos­pi­tals, 12 clin­ics and four up­com­ing clin­ics that are op­er­ated by its sub­sidiaries. All these com­pa­nies (RHT’s sub­sidiaries) will be­come For­tis’ sub­sidiaries af­ter the pro­posed ac­qui­si­tion is com­pleted.

TPG-Ma­ni­pal is work­ing on ex­tend­ing the va­lid­ity of its re­vised of­fer, which was placed be­fore the For­tis board on April 10, ac­cord­ing to sources. The April 10 of­fer was valid for seven days.

Ran­jan Pai, man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer of Ma­ni­pal Hos­pi­tals En­ter­prises, said if the full cap­i­tal did not come in at this point, it would lead to a longterm value ero­sion for For­tis’ in­vestors.

“It is not a ~10-bil­lion prob­lem, it is a ~40-bil­lion prob­lem. Long-drawn-out ne­go­ti­a­tions may trig­ger the in­sol­vency process for For­tis,” he said.

On April 12, Su­nil Kant Mun­jal of Hero En­ter­prise and the Bur­man fam­ily of­fice, which owns around a 3 per cent stake in For­tis Health­care, had pro­posed to in­vest ~12.50 bil­lion in two tranches to take care of the ur­gent fi­nan­cial needs of the com­pany, which is said to have only ~700 mil­lion in cash.

Given the com­plex na­ture of the deal and prob­a­ble de­lay in its clo­sure, the For­tis stock was down 1.94 per cent to ~149 at the end of Mon­day’s trade.

In­vestor con­sul­tancy firm IiAS said, “To eval­u­ate the bids, share­hold­ers need more cre­dence at the board-level: all four mem­bers of the cur­rent board have been as­so­ci­ated with ei­ther the For­tis group, the Reli­gare group, or Ran­baxy for long tenures in the past,” it said.

“The de­ci­sion on which bid to ac­cept can­not be driven by val­u­a­tion alone. There are ques­tions re­gard­ing sub­se­quent con­trol and the is­sues re­gard­ing the cur­rent pro­mot­ers need to be dealt with,” IiAS said.

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