Win-win Deal:

The For­tis-IHH deal gives the In­dian hos­pi­tal chain a chance to bounce back from re­cent set­backs even as the Malaysian com­pany gains a large foot­print across In­dia.

India Business Journal - - CONTENTS - IBJ BUREAU

The For­tis-IHH deal gives the In­dian hos­pi­tal chain a chance to bounce back from re­cent set­backs even as the Malaysian com­pany gains a large foot­print across In­dia.

The board of For­tis Health­care has picked Malaysia's IHH Health­care to take con­trol of In­dia's sec­ond-largest hos­pi­tal chain, end­ing months of a takeover bat­tle. For­tis picked up IHH's of­fer to in­fuse Rs 4,000 crore of cap­i­tal by way of sub­scrip­tion to pref­er­en­tial shares. In fact, IHH's of­fer seemed far lu­cra­tive than the ri­val TPG Cap­i­tal-Ma­ni­pal con­sor­tium's of­fer of Rs 2,100 crore of cap­i­tal in­fu­sion and merger of Ma­ni­pal Hos­pi­tals with For­tis Health­care.

IHH, which will get a 31 per cent stake in For­tis Health­care through the pref­er­en­tial al­lot­ment of shares at Rs 170 apiece, will make an open of­fer for an ad­di­tional 26 per cent at the same price. The open of­fer will cost another Rs 3,300 crore. The of­fer price was about 20 per cent higher than For­tis' pre­vi­ous clos­ing price. Based on the of­fer price of Rs 170 per share, the im­plied eq­uity val­u­a­tion for 100 per cent of For­tis Health­care is Rs 8,880 crore.

"The trans­ac­tion is ex­pected to be com­pleted within seven busi­ness days of re­ceipt of share­hold­ers' and CCI's (Com­pe­ti­tion Com­mis­sion of In­dia) ap­proval, which will be ob­tained con­cur­rently with the share­hold­ers' ap­proval and can take ap­prox­i­mately 60 to 75 days," For­tis Health­care has said in a state­ment. Ac­cord­ing to IHH, its open of­fer for For­tis is ex­pected to com­mence in Au­gust or Septem­ber this year.

A bet­ter deal

For­tis, which re­ported a net loss Rs 934 crore on a rev­enue of Rs 4,560 crore in 2017-18, adds that the pro­posal of­fers sig­nif­i­cant deal cer­tainty, given a "sim­pler" trans­ac­tion struc­ture and re­quire­ment of fewer ap­provals and a shorter time­frame.

"The IHH pro­posal of­fers a more strate­gi­cally and fi­nan­cially com­pelling propo­si­tion along with sim­plic­ity and cer­tainty, notes For­tis Health­care Chair­man Ravi Ra­jagopal. He adds that the board looked "for­ward to con­tin­u­ing the di­a­logue with our share­hold­ers ahead of the EGM (ex­tra­or­di­nary gen­eral meet­ing) to ap­prove the trans­ac­tion".

IHH Health­care is look­ing at re­brand­ing For­tis hos­pi­tals into its own Gle­nea­gles chain of hos­pi­tals in the long term. IHH Health­care Manag­ing Direc­tor and CEO Tan See Leng re­veals that the com­pany is will­ing to in­fuse more funds into For­tis, if re­quired. "Cur­rently, we feel that For­tis would re­quire about Rs 5,800-6,000 crore of fund­ing. We are putting in Rs 4,000 crore," Mr Leng dis­coses.

He fur­ther adds: "We are hoping to re­fi­nance and get some ad­di­tional debt in the com­pany, and even af­ter that, if needed by For­tis, IHH re­mains open to ex­plor­ing op­tions for rais­ing ad­di­tional cap­i­tal in con­sul­ta­tion with other share­hold­ers, in­clud­ing by way of rights is­sue, any other strate­gic

so­lu­tion in­volv­ing cap­i­tal mar­kets or oth­er­wise." IHH's of­fer in­cludes "funds in­fused to be used to­wards com­ple­tion of the ac­qui­si­tion of as­sets of RHT, SRL pri­vate eq­uity mi­nor­ity share­hold­ers and short-term liq­uid­ity needs", For­tis has added.

The TPG-Ma­ni­pal con­sor­tium had of­fered an in­fu­sion of Rs 2,100 crore through sub­scrip­tion to the pref­er­en­tial al­lot­ment at a price of Rs 160 per share and ac­qui­si­tion of stake held by pri­vate eq­uity in­vestors in SRL by Ma­ni­pal Health En­ter­prises (MHEPL) for Rs 1,134 crore. It also en­tailed the ac­qui­si­tion of as­sets of Sin­ga­porelisted RHT par­tially by util­is­ing pro­ceeds of the pref­er­en­tial al­lot­ment and par­tially through debt fi­nanc­ing and merger of Ma­ni­pal Hos­pi­tals (MHEPL) with For­tis at a val­u­a­tion at­trib­ut­able to MHEPL of Rs 6,070 crore.

"The IHH pro­posal of­fers a more strate­gi­cally and fi­nan­cially com­pelling propo­si­tion along with sim­plic­ity and cer­tainty."

RAVI RA­JAGOPAL Chair­man, For­tis Health­care

Twists & turns

IHH's of­fer is the third one that For­tis has ap­proved this year, with a pre­vi­ous of­fer be­ing shot down by share­hold­ers. For­tis Health­care founders Malvin­der and Shivin­der Singh lost their share­hold­ing of the hos­pi­tal chain due to debt and trig­gered a bid­ding war for cash-strapped For­tis.

For­tis' board had first ac­cepted a merger of­fer from MHEPL and US pri­vate eq­uity firm TPG Cap­i­tal. The bid­ding war, how­ever, es­ca­lated with four other suit­ors throw­ing their hats in the ring. For­tis had then ap­proved a Rs 1,800-crore in­vest­ment of­fer from a con­sor­tium of Mun­jals and Bur­mans, which was not ap­proved by For­tis' share­hold­ers. This forced the health­care com­pany to re-open the bid­ding process.

On May 29, the newly-re­con­sti­tuted board of For­tis had ini­ti­ated a fresh bid­ding process to meet For­tis' lon­gand short-term ob­jec­tives. Three bid­ders - IHH, the TPG-Ma­ni­pal con­sor­tium and the Hero-Bur­man con­sor­tium - were in­vited to par­tic­i­pate. For­tis then re­ceived an ex­pres­sion of in­ter­est from the Ra­di­ant-KKR con­sor­tium.

The due dili­gence ac­cess and man­age­ment in­ter­ac­tion were of­fered to all the four bid­ders. The fund in­fu­sion from IHH will ad­dress For­tis' liq­uid­ity re­quire­ments, in­clud­ing fund­ing for RHT ac­qui­si­tion and for pro­vid­ing exit to pri­vate eq­uity in­vestors of its di­ag­nos­tics arm SRL. The ac­qui­si­tion will also sig­nif­i­cantly in­crease IHH's reach across the In­dian sub­con­ti­nent and com­ple­ment its ex­ist­ing ca­pa­bil­i­ties in the high-value, qua­ter­nary-care seg­ment.

"IHH has al­ready been ac­tively ex­pand­ing and deep­en­ing its pres­ence in In­dia over the last few years, and this ac­qui­si­tion is a nat­u­ral pro­gres­sion in its ex­pan­sion and plans across In­dia," Mr Leng un­der­lines. He fur­ther adds: "With a clear and holis­tic strat­egy in place, we have de­vel­oped a 100-day turn­around plan to sta­bilise For­tis."

The deal will give IHH own­er­ship of over 30 hos­pi­tals in In­dia amid a pri­vate health­care boom. IHH is the world's sec­ond- largest health­care group by mar­ket cap­i­tal­i­sa­tion, op­er­at­ing 49 hos­pi­tals in nine coun­tries. For­tis runs 34 hos­pi­tals in In­dia and abroad. IHH is set to reap rich re­turns from the deal as more and more wealthy In­di­ans look up to cor­po­rate hos­pi­tals for their health­care needs. More­over, with the gov­ern­ment's mega health in­sur­ance scheme, Ayush­man Bharat, set to be launched soon, the For­tis deal could not have ma­te­ri­alised at a bet­ter time.

"With a clear and holis­tic strat­egy in place, we have de­vel­oped a 100day turn­around plan to sta­bilise For­tis."

TAN SEE LENG MD, IHH Health­care

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