The multi-layered structure of the proposed deal between Fortis Healthcare Ltd. and Manipal Health Pvt Ltd. is due to ongoing investigations at India’s second largest hospital chain, according to chairman and managing director of the Manipal Group Ranjan Pai.
“We've been looking at this asset for over a year now,” Pai told BloombergQuint in an interview. “There have been many investors who’ve come and gone. One of the reasons it didn’t go through was because of the structure and the investigations that are going on. That's the reason we've come up with this structure,” he said.
The two-step deal to create India’s largest healthcare company overtaking Apollo Hospitals Ltd. involves merger of hospital business of Fortis Healthcare with Manipal Health. That will be followed by an infusion of Rs 3,900 crore from Manipal Health to increase stake in SRL Diagnostics and buy assets from Religare Health Trust.
After the deal, Fortis will be left with a 36.6 percent residual stake in SRL which Manipal will offer to buy out once the probe is finished, Pai said. “Once the investigation is completed, if everything comes clear, then we'll merge the residual value with Manipal.”
The deal comes as Fortis Healthcare founders Malvinder Singh and Shivinder Singh battle allegations of siphoning funds from the hospital chain and non-bank lender Religare Enterprises Ltd., Bloomberg reported earlier. India’s fraud watchdog and stock market regulator are both investigating the company. The brothers stepped down from the boards of the two companies earlier this year.
Following the deal, a group of minority shareholders of Fortis have come together to oppose the deal, Livemint reported earlier today. Pai said Manipal Health is in talks with stakeholders to get their feedback. “We’ll do our best to talk to the minority [shareholders] who have an objection to this. I am pretty confident we'll get them across.”
We have reached out to some of the investors. We did speak to Eastbridge and some of them and we explained our views to them. And we hope that they will be convinced that in the medium to long term, this is a great story.Ranjan Pai, Chairman and MD, Manipal Health
Pai added that most investors who are opposing the deal are concerned about the way it has been structured and Fortis’ residual 36.6 percent in SRL. “We are assuring them that once the investigations are over, we'll look at merging.”
He said that the SRL part of the deal will be completed in the next two months, while the merger of the hospitals will take up to nine months.
Watch the full interview here.