Ending a months-long bidding war that saw offers from domestic as well as international players, Malaysia’s IHH Healthcare finally emerged as the winner and is set to take control of Fortis Healthcare with its offer to infuse Rs 4,000 crore of capital by way of subscription to preferential shares. Rival TPG-Manipal consortium’s offer included Rs 2,100 crore infusion and merger of Manipal Hospitals with Fortis Healthcare. The bid price of Rs 170 a share represents a roughly 20% premium to Fortis’ last closing price and 30% to the unaffected price as on July 2, 2018. It represents a 22.3x multiple of Fortis Healthcare’s earnings before interest, tax, depreciation and amortisation for the 12 months ended March 31, 2018, and 19.5% and 15.3% premiums to the closing share price on
July 12, 2018, and 60-day volume weighted-average price, respectively. IHH will get a 31% stake and after the completion of the open offer for an additional 26% at the same price, it could see its stake go up to 57%. The open offer will cost another Rs 3,300 crore. Based on the offer price of Rs 170 per share, the implied equity valuation for 100% of Fortis Healthcare is Rs 8,880 crore. Shares of Fortis Healthcare closed 3.97% higher at Rs 147.80 each on the BSE on Friday.
IHH’s offer is the third one that Fortis has approved this year, with a previous offers being shot down by shareholders. Earlier, four players — the Munjal-Burman consortium, IHH, Radiant Life Care and the Manipal-TPG consortium — were shortlisted for the process. The company, however, only received two binding bids, from the TPG-Manipal combine and IHH. Fortis had put forward certain conditions for the binding bids that included a minimum investment of `1,500 crore by way of preferential allotment, a plan for funding RHT Health Trust’s buy, 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.
The transaction is expected to be completed within seven business days of receipt of shareholders and Competition Commission of India’s approval, which will be obtained concurrently with shareholder’s approval. IHH is present in nine countries through 49 hospitals and more than 10,000 licensed beds. Its managing director and CEO Tan See Leng said the acquisition would significantly increase the company’s reach across the Indian subcontinent, complementing its existing capabilities in the high-value quaternary care segment.
“IHH has already been actively expanding and deepening our presence in our home market of India over the last few years and this acquisition is a natural progression in our expansion and plans across India,” he said. Leng added, “With a clear and holistic strategy in place, we have developed a 100-day turnaround plan to stabilise Fortis.”
Leng said 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. 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.”
In a media call, Fortis CEO Bhavdeep Singh said that the company sees an opportunity to leverage the expertise of IHH Healthcare and continue to grow the Fortis brand. “I think we have an opportunity from a diagnostics perspective. The SRL business is a very strong brand. That is one untapped thing that can be quite significant. It also opens a huge opportunity from a clinical perspective, ie, the research and clinical trials space, which is very significant,” he said.
Singh pointed out that the bid by IHH was the highest price that was available. “It was a strong premium of 20% to the current market price. It requires lesser approvals and hence we can consummate the transaction in a lesser time period than the others. It also gives an exit opportunity to Fortis shareholders because there is an open offer involved,” he said.
Fortis currently operates a network of 34 hospitals across the country and internationally with a capacity of over 4,600 beds and employs more than 2,600 doctors and 13,200 support staff. Chairman Ravi Rajgopal pointed out that there is unlikely to be any change in the management structure after the transaction. “Of course, when IHH will come in as a majority investor, they may review the talent bench and try and supplement or augment it. But otherwise as things stand, there are no moves to change the current structure,” he clarified.
IHH said that it intends to have Fortis Healthcare and subsidiary Fortis Malar continue to retain their listing status on the BSE. “IHH is also supportive of Fortis Healthcare’s announced plan to acquire RHT Health Trust, which is listed in Singapore and currently has a portfolio of 12 clinical establishments, four greenfield clinical establishments and two operating hospitals,” it said.