Malvinder Singh Restructures His Empire; Values Diagnostics Arm at Nearly Rs 5,081 Crore
Malvinder Singh restructures Fortis Group; Values diagnostic business at Rs 5,000 crore.
Malvinder Singh is realigning his healthcare empire to unlock value for the diagnostics business. Fortis Healthcare Ltd.’s board has approved a multi-step business restructuring plan that would establish distinct diagnostics and hospital businesses.
Fortis Healthcare will demerge its diagnostics business, which includes SRL Ltd., into Fortis Malar Hospitals Ltd., the company said in a press release. Shareholders of Fortis Healthcare will get 98 equity shares of Fortis Malar for every 100 shares they own of Fortis Healthcare. Fortis Malar will issue 51.2 crore shares to shareholders of Fortis Healthcare, valued at Rs 2,923 crore, according to data compiled by BloombergQuint.
As part of the merger of SRL into Fortis Malar, shareholders of SRL, barring Fortis Malar itself, will be issued 108 equity shares of Fortis Malar for every 10 shares they hold of SRL. Fortis Malar will issue 37.8 crore shares to minority investors of SRL, valued at around Rs 2,158 crore, according to data compiled by BloombergQuint.
Post the transaction, Fortis promoters and the promoter group will hold 41.92 percent in the diagnostics business, while the public – including investors of erstwhile SRL – will hold 58.08 percent.
Fortis Malar closed on Friday at Rs 57.1 per share on the Bombay Stock Exchange.
The name of Fortis Malar will be changed to SRL and the demerged entity will be listed on the National Stock Exchange. Fortis Malar is already listed on the Bombay Stock Exchange.
Transfer of Hospital Business
The scheme of arrangement also includes the sale of Fortis Malar’s hospital business based out of Chennai to Fortis Healthcare, for a lump sum cash payment of Rs 43 crore.
The appointed date for the slump sale, demerger and merger under the scheme is January 1, 2017.
Restructuring Rationale
The restructuring will increase operational efficiency and will create a more simplified organisational structure as both the hospitals and the diagnostics businesses have distinct operating models, the company said in the press release.
As a result of the new synergistic groupings, both the hospitals and diagnostics businesses will benefit from greater clarity, a stronger focus, and independent growth trajectory. Equally, this will enable the accelerated pursuit of their respective business goals while empowering them to reach their fullest potential.Malvinder Singh, Executive Chairman, Fortis Healthcare
SRL, post the scheme of arrangement, will have a topline of Rs 1,500 crore, Bhavdeep Singh, chief executive officer of Fortis Healthcare told BloombergQuint in a telephonic interview. The realignment will allow the group to sweat its diagnostics business and unlock value for the shareholders. Here is an edited excerpt of that conversation.
Can you take us through the entire scheme of arrangement approved by the board today?
The board has approved the demerger of the SRL business. The SRL business today is part of Fortis Healthcare. So Fortis Hospitals has the hospital business and diagnostics business. Then we have Fortis Malar, a listed entity, which has a Fortis Malar hospital and a local diagnostics business and some small investments. Two to three things happened here, One, Fortis Hospital is buying that hospital business for Rs 43 crore, and so the hospital is going to shift over to Fortis Healthcare. So that leaves a listed entity in Fortis Malar entity which has the diagnostics business, and as I mentioned, a small investment. The SRL business will be demerged from Fortis Healthcare and moved into Fortis Malar. The Malar entity will now be called SRL Ltd., and will have existing diagnostics business of Malar, some small investments and the SRL business that has been shifted there.
The way we end up is we have Fortis Healthcare Ltd., a listed entity with hospitals and the Malar hospital we bought, The Malar entity will have the existing diagnostics business and the SRL business which will shift and be part of this entity.
From a shareholder perspective, Fortis Healthcare shareholders will receive 98 shares of the new entity for every 100 shares they own. That is for one share, they get 0.98 shares of that stock. You are probably aware that in SRL Healthcare, Fortis Healthcare has 56 percent ownership while 44 percent is owned by other investors. That investor group is getting 10.8 shares of the new entity for every one share they have.
What is the valuation given to SRL in the entire process?
It is too early to talk about valuations. It is difficult because this is going to change. This transaction will take 8-9 months to close. I am not comfortable commenting on it right now because it will be a value based on specific calculations. Suffice to say, we do believe that Fortis Healthcare and SRL, between the two very strong entities, there will be potential to unlock some value. What the specific numbers are, it’s too early to say.
What will be the topline for both entities post the scheme of arrangement?
For the Fortis Healthcare business, it will be somewhere around Rs 4,000 crore. The SRL business will be close to Rs 1,500 crore. I think if you look at the combined businesses as they go forward, they will be strong businesses. What we are excited about is the growth of these businesses when we go forward.
You have a big growth plan for SRL, and this scheme allows you to focus on the diagnostics business and the hospital business? What are the capital needs of these two businesses?
The SRL business has a capital plan somewhere in the range of Rs 40-50 crore. I think there is a big opportunity we have – since we have a broad geographic presence of laboratories, production centres etc. – which ensures that we get value out of these existing businesses. We continue to invest there, we obviously have to invest in technology and equipment, because there is a lot of innovations happening in healthcare, research, trials etc. In the healthcare business, there will be capital investments of around Rs 300 crore per year and I think we need to keep on investing.
By when do you expect the entire scheme of arrangement to be complete?
We expect to complete the process in 8-12 months, on a short end, 7-8 months. The transaction is a little complex and we need to go through all the approvals