The Board of Directors of Fortis Healthcare Limited has selected the binding investment proposal from Malaysia’s IHH Healthcare Berhad to invest Rs 4,000 crores by way of preferential allotment at a price per share of Rs 170/share as the winning bid.
The development comes a little more than a year after IHH, the world’s 2nd largest provider of integrated healthcare services by market capitalization pulling out of bilateral negotiations with the then promoters Malvinder and Shivinder Singh. The other bidder for Fortis was the consortium of Manipal Hospitals and TPG.
The bid price of Rs 170/share offers a premium of around 20% to the current market price and 30% to the unaffected price as on 2nd July 2018. The investment will also address the liquidity concerns of India’s second largest hospital chain, Fortis said in a statement on Friday morning.
IHH will also launch an open offer of upto Rs 3300 crore to acquire an additional 26% shareholders of the company at a price nor less than Rs 170/share. Their proposal provides for refinance of debt to the extent of Rs 2,500 crores. Funds infused to be used towards completion of acquisition of assets of RHT, SRL private equity minority shareholders and short term liquidity needs.
In comparison, Manipal-TPG had offered to infuse Rs 2,100 crore through subscription to the preferential allotment at a price of Rs160 per share. The proposal also included buying out the PE investors of Fortis’ diagnostics arm SRL, who owns a third of the company, for Rs 1,134 crore, acquisition of assets of RHT partially by utilizing proceeds of preferential allotment and partially through debt financing and the eventual reverse merger of Manipal Hospitals with Fortis, valuing the former higher at Rs 6,070 crores and the latter at a price per share of Rs160. A rights issue or a QIP post the merger to repay the bridge funding raised to complete acquisition of assets of RHT, the Singapore based trust that owns several of the the hospital assets was also suggested. Fortis holds 29% in RHT.
The transaction is expected to be completed within 7 business days of receipt of shareholder’s and CCI’s approval which will be obtained concurrently with shareholder’s approval and can take approximately 60-75 days.
IHH is present across 9 countries through 49 hospitals and more than 10,000 licensed beds
“The IHH proposal offers a more strategically and financially compelling proposition along with simplicity and certainty. The process was relaunched on 29th May 2018 and has been conducted in a fair, time-bound and transparent manner. The release of the audited FY 2018 financial statements was a key milestone in underpinning the overall success of the transaction. As part of the process, we look forward to continuing the dialogue with our shareholders ahead of the EGM to approve the transaction,” said Ravi Rajagopal, Chairman, of Fortis.
Interestingly both bidders have revised their bids downwards for the final round.
Since earlier this week, the Fortis board along with their advisors Standard Chartered Bank and Arpwood has been evaluating both offers in consultation with their lawyers Cyril Amarchand Mangaldas and Vaish Associates, based on a number of parameters including a minimum capital commitment of Rs 1500 crore by way of preferential allotment; detailed funding plan for the acquisition of RHT Health Trust, the separately listed Singapore-based trust that holds Fortis’s real estate assets, with a long-stop date of September 30, 2018, and a blueprint for the diagnostics arm SRL, including an exit strategy for private equity investors who own a third of the unit.
Before binding offers were sought IHH offered to infuse up to Rs 7,400 crore for over 50% in Fortis Healthcare at Rs 175 per share.
Manipal-TPG in May proposed to infuse Rs 2,100 crore through a preferential allotment at Rs 180 a share, which would allow it to own 18.4% in Fortis at a valuation of Rs 9,403 crore. It also planned to buy out Fortis unit SRL Diagnostics’s PE investors for Rs 1,113.4 crore. In the third stage, it agreed to merge Manipal Health Enterprises with Fortis Healthcare after restructuring the SRL board.
Citi and HSBC are working with IHH.
The Fortis acquisition will give a strong franchise to IHH to significantly scale up its India footprint, considered to be its 4th strategic market worldwide. India accounted for 6% of IHH’s global revenues in 2017 and 1% of the global EBITDA and is still making losses at the PAT level. But IHH CEO sees the market contributing 15-20% of overall topline revenue over the next 5-10 years.
Backed by Malaysian sovereign fund Khazanah Nasional, IHH has had a strong presence in India since 2002 and has already deployed over $500 million in investments. In 2015, the IHH’s Parkway Panthai acquired 51% of Continental Hospitals for Rs 300 crore and 74% of Global Hospitals for Rs 1,280 crore, both based in Hyderabad. In May last year, IHH ended its 12-year association with Apollo Hospitals after netting Rs 1,900 crore from the investment. Interestingly, IHH and Fortis had competed aggressively against each other when the Singh brothers, erstwhile promoters of Fortis, unsuccessfully tried to acquire Parkway in 2010.