Minimal impact to IHH Healthcare

Fortis bid failure hardly moves its share price

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