On 27 March 2018 the Board of Fortis Healthcare (FHL) approved the demerger from and sale of its hospital business to Manipal Hospitals, a private hospital group. Post the deal, the merged Fortis-Manipal entity will be publicly listed. The Board also approved the sale of Fortis’s 20% stake in SRL (the diagnostic business) to Manipal for Rs 720 crore, valuing SRL at Rs 3,600 crore. As part of the deal, Manipal’s chairman Ranjan Pai and TPG Capital Asia will invest R3,900 crore into the Fortis-Manipal merged entity; the amount will be utilised to finance the acquisition of its 50.9% stake in SRL (20% from Fortis and 30.9% from private investors) and Fortis’s proposed buyback of Religare Health Trust (RHT), a trust listed in Singapore. Existing shareholders of Fortis will receive 10.83 shares of the merged entity for every 100 shares of FHL. The deal is subject to approvals from the shareholders of FHL and Manipal Hospitals, Stock Exchanges, the Securities & Exchange Board of India (Sebi), Competition Commission of India (CCI) & National Company Law Tribunal (NCLT). Fortis expects the deal to complete by 4QFY19. The Fortis-Manipal merged entity will be the largest in terms of revenues in the Indian healthcare space with a pan-India presence. The deal has valued the hospital businesses of both Fortis and Manipal at 30x EV/EBITDA which leads to a combined entity value of Rs 15,000 crore. In our assessment, the deal values the entire Fortis business at a minor premium (6-7%) to the closing price of 27 March 2018 (deal announcement date), which broadly implies the hospital business was valued at Rs 115-118 per share (vs consensus expectation of Rs 125-150 per share). We believe the market is seeking more clarity on the methodology used for valuing Fortis and Manipal. There are also concerns around how the asset holdings structure works and the holding company discount is applicable post the deal.