Fortis picks IHH as its new owner

M alaysia’s

IHH Healthcare Bhd is set to take control of India’s Fortis Healthcare Ltd after its bid of up to $1.1 billion was chosen over a rival’s, giving it ownership of over 30 hospitals amid a private health-care boom in India.

IHH’s 170 rupees per share offer for as much as 57% of Fortis represents a roughly 20% premium to its last closing price and caps a months-long bidding war for control of the Indian company that drew interest from domestic and international suitors.

IHH’s offer is the third one that cashstrapped Fortis has approved this year, with a previous offer being shot down by shareholders. It beat out a joint bid from Indian firm Manipal Health Enterprises Ltd and US private equity firm TPG Capital.

Four analysts told Reuters they expected the deal to finally get shareholder approval.

“It’s a very straightforward deal. Given the problems Fortis has, this is the best they can get at this time,” said Nitin Agarwal, an analyst with IDFC Securities.

Fortis has struggled with a cash crunch, rising debt, and image problems.

Indian regulators are l ooking into allegations that its founders took funds from the company. The two founders, who have since left the company, deny wrongdoing.

But the company’s assets are still considered attractive thanks to rising private healthcare spending in India. Also, the government aims to expand insurance to millions of people in a country that lacks adequate heath facilities, benefiting private hospitals such as those run by Fortis.

Fortis said it would call a shareholder’s meeting at the earliest to seek approval for the IHH bid.

IHH will pay Fortis 40 billion rupees ($585 million) for a 31% stake. Under Indian regulations, IHH will then bid for another 26% of Fortis, offering up to 33 billion rupees.

Fortis said it settled on IHH’s “simpler” offer, which will allow the Indian firm to refinance up to 25 billion rupees of debt, and address its short-term liquidity needs. Manipal had offered 21 billion rupees at 160 rupees per share.

On a conference call with the media, Fortis chairman Ravi Rajagopal said he did not expect the company’s current management structure to change after the IHH deal.

Malaysian brokerage PublicInvest Research said the acquisition was a good step for IHH to expand its footprint in India at a good price.

“Greenfield doesn’t really work in India due to the long bureaucratic process for greenfield acquisitions,” the brokerage said.

IHH said in a separate statement it expected the deal to be completed in the fourth quarter and did not expect it to have any material effect on profits for the fiscal year ending Dec 31.

Fortis had accepted in March a merger offer valued at 150 billion rupees from Manipal-TPG, but four other suitors soon threw their hats in the ring, escalating it into a rare bidding war.

The company then approved an 18 billion rupees investment offer from a consortium of two prominent Indian business families.

But with several shareholders expressing their displeasure through the process, Fortis was forced to re-evaluate its initial choice and re-open the bidding process.