The board of Fortis Healthcare has decided to call off the demerger of its diagnostics business, including that of its majority-owned subsidiary SRL, into Fortis Malar Hospitals, according to a stock exchange notification filed late on Wednesday evening.
The proposal of demerger, which was announced in August 2016, was pending before the National Company Law Tribunal (NCLT).
Fortis said that the entire process was expected to take six-eight months but due to reasons beyond the company’s control, it has taken over 19 months and is still not complete.
The company explained that during the 19 months, the healthcare sector has witnessed strong headwinds and the performance of the diagnostics business has not been optimum. “Given the challenges/headwinds in the sector and less than optimum performance of the diagnostics business during the period of delay, the demerger and a subsequent listing may result in value unlocking that may not be optimum for Fortis shareholders at this point of time,” the company stated.
Fortis Malar Hospital, formerly known as Malar Hospital, was established in 1992. In late 2007, Fortis Healthcare had acquired a stake in the hospital.
According to the composite scheme of arrangement announced in August 2016, Fortis Malar’s hospital business was to be sold to Fortis Healthcare by way of a slump sale for a lump cash consideration of `43 crore. Upon the scheme becoming effective and after the receipt of requisite approvals, the diagnostics business of Fortis Healthcare, including that of SRL, was to be vested in Fortis Malar. The name of Fortis Malar was subsequently to be changed to SRL.
Fortis Healthcare said that the company has now decided to initiate a fresh, time-bound process to optimise the company’s and shareholders’ interests.
The withdrawal of the proposed scheme comes at a time when the cash-strapped company is in the process of finding a buyer. Four players — the Munjal-Burman consortium, IHH Healthcare of Malaysia, Radiant Life Care and the Manipal-TPG consortium — have been shortlisted for the process. The company recently extended the deadline for the submission of binding bids to June 28.
Fortis has put forward certain conditions for the binding bids that include a minimum investment of Rs 1,500 crore by way of preferential allotment, a plan for funding RHT Health Trust’s acquisition, with a long-stop date of September 30, a plan for providing exit to private equity investors of SRL and plans for the retention of current management and employees.
On June 11, Fortis decided to defer the approval of its quarterly and annual financial results for the period ended March 31, 2018 citing that the completion of the audit and accounts would require additional time to consider the aspects of a report of an internal investigation conducted by Luthra and Luthra Law Offices, comprehensively in the financial accounts.