Min­i­mal im­pact to IHH Health­care

For­tis bid fail­ure hardly moves its share price

The Star Malaysia - StarBiz - - News - By P. ARUNA aruna@thes­tar.com.my

PETALING JAYA: Shares of IHH Health­care Bhd shed one sen fol­low­ing an an­nounce­ment that its pro­posed ac­qui­si­tion of For­tis, In­dia’s sec­ond largest health­care provider, was off.

South-East Asia’s largest hos­pi­tal op­er­a­tor saw 1.78 mil­lion shares traded yes­ter­day to close at RM6.09.

The group, in a fil­ing with the stock ex­change, had stated that the pro­posed ac­qui­si­tion was off be­cause For­tis was un­able to en­gage with it.

This, it said, was due to For­tis hav­ing al­ready en­tered into bind­ing agree­ments with Ma­ni­pal Health En­ter­prises Pri­vate Ltd, Ma­ni­pal Global Health Ser­vices and TPG Asia – col­lec­tively known as Ma­ni­pal-TPG.

May­bank Kim Eng noted that if IHH de­cided to chal­lenge the bind­ing agree­ments, it would have to “mean­ing­fully raise” its of­fer and con­vince the For­tis board that its value propo­si­tion was su­pe­rior.

“We would need to see more com­pelling ben­e­fits to get com­fort­able with an in­crease, as our ini­tial cal­cu­la­tions show the cur­rent bid is only mildly ac­cre­tive, yet has risks,” it said in a note.

The re­search house, which main­tained its “buy” call on the counter, said while For­tis’ 45 health­care fa­cil­i­ties could in­stantly give IHH ac­cess to a big­ger mar­ket and make it the sec­ond largest hos­pi­tal group in In­dia, it was mind­ful of some op­er­a­tional chal­lenges at For­tis.

The chal­lenges in­clude an on­go­ing in­ves­ti­ga­tion by reg­u­la­tors, tight­ened credit lines, its com­plex hold­ing struc­ture, tepid op­er­a­tional per­for­mance com­pared to its peers and a lit­i­ga­tion against for­mer pro­mot­ers.

May­bank Kim Eng reck­ons that there is a risk of over­pay­ing if IHH chooses to raise its of­fer.

How­ever, it said fi­nan­cial strength was not an is­sue as IHH could fund the ac­qui­si­tion us­ing in­ter­nal re­sources.

CIMB Re­search was also of the opin­ion that IHH will con­tinue to pur­sue the deal, say­ing the group might take

For­tis’ share­hold­ers.

It said For­tis was at­trac­tive to IHH due to its ex­ten­sive pres­ence, par­tic­u­larly in north­ern In­dia, its large hos­pi­tals with ex­per­tise in niche and com­plex care, and its align­ment with IHH’s brown­field strat­egy.

“If IHH is suc­cess­ful in ac­quir­ing a con­trol­ling stake in For­tis, we ex­pect in­te­gra­tion ef­forts to weigh on its near-term prof­itabil­ity, but could un­lock greater economies of scale in the medium term,” it said.

The re­search house added that IHH’s global track record and es­tab­lished man­age­ment team in In­dia could help in turn­ing For­tis around. The bro­ker­gare main­tained its FY18FY20 earn­ings es­ti­mates, pend­ing fur­ther de­vel­op­ments on the bid. its of­fer di­rectly to

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