Fortis Buyout Deal
Fortis Healthcare, the second largest hospital chain in India had received an offer of acquisition and would now be possibly acquired by IHH Healthcare Berhad, a Malaysian-Singaporean private healthcare group.
How did it all Begin?
There are ongoing multiple probes by SEBI and Serious Fraud Investigation Officer against Fortis Promoters Malvinder and Shivinder Singh. Their stake in Fortis has subsequently been reduced to less than 1%, as their shares were pledged and subsequently sold by lenders. Hence, the company wants to do away with them. They had also been fined $390 Million by the Singapore Arbitration Court for allegedly suppressing and misrepresenting facts on sale of their firm Ranbaxy Laboratories to Daiichi Sankyo about 8 Years Ago. The Company is in truly bad shape with the their reputation taking a plunge.Currently over 80% of Fortis is held by the public and few institutional investors, like Yes Bank and Blackrock.
TPG, a private equity firm, along with Manipal Healthcare had formed a partnership to take a controlling stake in Fortis Hospitals, the distressed Hospital Chain. This would enable Manipal, currently a private company to be a publicly listed entity on both the NSE and the BSE, through a reverse merger. The Role of TPG would be to infuse additional capital and would receive a 20% stake for the same.
The above deal was finalized in March 2018, and Fortis would be acquired at Rs.95/Share, valued at Rs.5000 Crores. Many Investors of Fortis, such as Yes Bank and Rakesh Jhunjhunwala were against the deal, saying that it undervalued Fortis, the minority shareholders had rejected the deal on the same grounds.
Fortis underwent the bidding process again with bids coming from IHH Healthcare Berhad, the Manipal-TPG Consortium, Munjal-Burman, China’s Fosun and KKR backed Radiant Life Care group also. It was a heated battle between all the investors. Eventually IHH, at Rs.170/Share, was the highest offer at over 20% premium at the current market price and valued Fortis at Rs.8880 Crores.
It is rightly said that if you want something from the bottom of your heart, the whole world conspires for you to achieve it and this was what happened and due to which IHH were able to finalise the deal which they consider will be able to expand their reach into the Indian Markets and give them significant gains in the long term as well.
Now, IHH would invest Rs.4000-Rs.7400 crore at Rs.170/share to hold anywhere between 31.1% to 57.1% equity shares, subject to acceptance of their offer to the shareholders. It would infuse equity through preferential allotment(for 31.1% stake, which is the minimum stake guaranteed now) and offer the shareholders cash for their holdings(26%).
The chairperson of IHH Audit panel , voted the transaction too risky at a meeting of IHH Board. But the deal is likely to go through as the the majority of IHH Board supported the acquisition.
What Lies Ahead for Fortis ?
Post the acquisition, private equity investors of SRL in which Fortis owns 56% can exit the business. Also, Fortis would acquire Religare Health Trust(RHT), a Singapore subsidiary of Fortis, post the infusion of equity by IHH.
Fortis could be rebranded as Gleneagles post acquisition by IHH.
Shareholders of Fortis would meet on August 13 this year in New Delhi to approve the offer of IHH, although the board of Fortis has unanimously approved the deal.
We here at Evening Star are of the firm belief that this offer would be beneficial for the Fortis Shareholders and should go through. The company is now valued rightly from Rs.95/Share initially to Rs.170/share for the purpose of acquisition.
IHH’s MD and CEO, Dr. Tan See Ling has a clear 100 Day plan for the revival of Fortis and it could be a monumental step in the revival of Fortis and possibly increase the quality of healthcare services of Fortis through the Global Presence of IHH, and help in the improvement of Healthcare services in India, both in terms of price and quality.