Fortis Healthcare Ltd. will demerge its hospitals business into TPG-backed Manipal Hospitals and divest management control of its diagnostics business to the same entity in a two-step deal.
The resultant entity Manipal Hospitals will automatically list on the Indian exchanges and become the largest hospital services provider in the country by revenue, Fortis Healthcare said in an exchange filing today. Every shareholder of Fortis Healthcare will receive 10.83 shares in Manipal Hospitals – the resultant combined hospitals business – for every 100 shares held.
In the second part of the transaction, Manipal Hospital will buy 50.9 percent stake in SRL Diagnostics from Fortis Healthcare and other private equity investors of SRL. This includes Manipal Hospitals buying 20 percent stake from Fortis Healthcare for Rs 720 crore and an additional 30.9 percent stake from private equity investors, according to the exchange filing. After the completion of the transaction, SRL will become a subsidiary of Manipal Hospitals and Fortis Healthcare will be an investment holding company with about 36.6 percent stake in it. The remaining 12.5 percent stake in SRL will be held by existing investors, including management.
Bloomberg had reported the deal on Monday.
The demerger comes in the wake of Fortis Healthcare founders Malvinder Singh and Shivinder Singh battling allegations of financial irregularities. India’s fraud watchdog and stock market regulator are both investigating the company after the Singh brothers allegedly siphoned Rs 500 crore from the company with board approval, Bloomberg reported earlier.
As part of the proposed transaction, Manipal Hospitals promoters Ranjan Pai and TPG will invest Rs 3,900 crore into Manipal Hospitals. The funds will be utilised by Manipal Hospitals to finance the acquisition of 50.9 percent stake in SRL. In addition, the investment will support the proposed acquisition of hospital assets owned by the Singapore-listed RHT Health Trust and the growth of the hospitals and the diagnostics businesses.
The deal is value accretive for all stakeholders, Fortis founders Shivinder Singh and Malvinder Singh said in a press statement today. “The demerger of Fortis’ Hospital business into Manipal Hospitals, promoted by Dr. Ranjan Pai and backed by TPG, will unlock significant value for all stakeholders and will further accelerate and expand access to high quality healthcare services in India.”
Earlier this month, Yes Bank Ltd. had also acquired a 17.3 percent stake in Fortis invoking a pledge that was triggered after the promoter group defaulted on loans provided by the Mumbai-based private bank. The acquisition had made the private lender the biggest shareholder in the beleaguered hospital chain.