Manipal-TPG combine set to unveil $1 billion deal for Fortis

The board of Fortis and Manipal are set to meet on Tuesday to — if there are no last minute glitches — unveil the largest healthcare M&A in the country.

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MUMBAI: The board of Fortis Healthcare is set to receive a formal offer from Manipal Hospitals, backed by private equity giant TPG, to take control of the troubled company as early as on Tuesday, people directly aware of the matter said. The board of Fortis and Manipal are set to meet on Tuesday to — if there are no last minute glitches — unveil the largest healthcare M&A in the country.

TPG has been spearheading talks for nearly 18 months to combine Manipal with Fortis, India’s second-largest hospital chain, hit by controversies about founders diverting funds and financial difficulties. TOI first reported on TPG’s efforts to script a billion-dollar merger deal, which would rival long-standing industry leader Apollo Hospitals Enterprises, on February 16 last year.

The broad contours of the deal suggests that Fortis, mired in controversies and facing multiple probes, may demerge the hospitals, into which Manipal would merge. The complicated, multi-stage transaction would also see the new promoters folding SRL Diagnostics, parked under Fortis Malar, into itself. The formal offer from Manipal and TPG combine, which may come at a lower figure than the originally anticipated valuation, could face some resistance from minority shareholders. It is not yet clear whether the controversial founders and their allies are still fully behind the deal with Manipal.

The hospital — teetering on the brink of bankruptcy — has been waiting for a credible offer, which Manipal and TPG are poised to make shortly. This does not rule out counter offers as consummating the complicated, multi-staged transaction might take several months, or possibly a year from now. But the fact that operational performance of Fortis has deteriorated — operating profit is said to be lower at Rs 450 crore, down from Rs 650 crore in the previous fiscal — and the broader regulatory move to control prices of hospital procedures have posed risks to premium valuations.

When contacted, Fortis, TPG and Manipal declined to comment on speculation. Fortis shares closed 3% higher at Rs 148 apiece, significantly lower than the 52-week high of Rs 231 in May last year.

The deal to gain control of Fortis has been see-sawing for several months with rival bidders such as Malaysia’s IHH Healthcare Berhad entering into protracted discussions. Founders Shivinder and Malvinder Singh quit the Fortis board last month after the Delhi high court allowed Japanese drugmaker Daiichi Sankyo to enforce an international arbitration award to recover Rs 3,500 crore from the brothers for concealing wrongdoing in Ranbaxy, which it acquired for $4.6 billion in 2008.

Soon thereafter, a Bloomberg report alleged that the siblings had taken out about Rs 500 crore. Fortis and the Singh brothers denied the allegations and stated these were “secured short-term investments in normal course of treasury operations”. By then, the hospital chain had already plunged into financial difficulties and struggled to meet salary commitments to staff. In the wake of the court order favouring Daiichi, the lenders who held the pledged promoter stock converted loans into shares to offload them in the market. This saw the Singh brothers’ holding in the hospital chain crash to just 0.80%.

The deal-making stretched once again as regulators and SFIO started probing Fortis. Meanwhile, some of the lenders like Edelweiss and Indiabulls, who took charge of the promoter shares, started selling in the open market. Yes Bank and Axis Bank hold about 18%. Some of the offloaded shares have been mopped up by various shareholders, including activist funds.

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