The logo for Fortis Healthcare India Ltd.’s Renkare dialysis clinic is displayed at the clinic’s reception area in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Fortis Opts for India Tycoons Over TPG, KKR in Hospital Deal

(Bloomberg) -- Fortis Healthcare Ltd.’s board passed over bids backed by U.S. private-equity giants TPG and KKR & Co. in favor of local tycoons in the contentious battle for control of India’s second-largest hospital chain.

The drawn-out takeover fight moved a step closer to a conclusion after the Fortis board late Thursday chose a joint proposal from two Indian business families. The rejected offers include bids by TPG-backed Manipal Health Enterprises Pvt. and KKR-backed Radiant Life Care Pvt.

Big name private-equity firms and companies from China to Malaysia were attracted to Fortis by the rare opportunity to increase their presence in one of the world’s most underserved health-care markets. The battle kicked off this year when its founders lost control of their shareholding due to debt, and Indian authorities started investigating allegations they had taken millions of dollars out of the company.

“From the point of view of certainty, and risk, and liquidity flowing into the company, this is the best decision,” Brian Tempest, a member of Fortis’s board, said at a press conference. “There is a significant amount of money that will flow into Fortis and it will flow very quickly, and there is certainty that this company will be back on its feet.”

But even with the board’s decision, the battle for Fortis may not be over. Shareholders still need to decide on whether to accept the deal. Before they do, there will likely be another tussle on a motion by two shareholders to remove most of the directors. Five of the eight board members favored the bid from the local tycoons, according to Tempest.

The winning joint proposal from Sunil Kant Munjal’s Hero Enterprise Investment Office and the Burman Family Office will see Fortis get an 8 billion rupee ($119 million) infusion of new equity, priced at 167 rupees per share, according to a filing late Thursday.

The Munjal-Burman offer would also purchase a further 10 billion rupees worth of warrants, which would give them an option to buy more stock at a price of 176 rupees per share, according to the statement. Of that, 2.5 billion rupees would come up front.

Bidding War

Fortis’s board previously agreed to a deal with TPG-backed Manipal Health, only to have it unravel and spark the bidding war. Other offers including from IHH Healthcare Bhd. and China’s Fosun International Ltd. emerged, and some of them fought to sweeten the deal.

While IHH, Manipal Health and Radiant Life operate hospital chains, the winning bidders have a smaller presence in the segment, with one of the two tycoons holding the post of president at a 1,500-bed hospital located in northern India.

“Shareholders will be disappointed with the choice as this is just a financial infusion and doesn’t change the character of Fortis Healthcare,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research Services Pvt. “Shareholders will push for change of the board.”

Shares of Fortis fell 3 percent, the most since March 28, compared with a 0.8 percent gain in the benchmark S&P BSE Sensex in Mumbai.

Ranjan Pai, chairman of Manipal Education and Medical Group, Manipal Health’s controlling shareholder, said he was disappointed with the decision and wished the best to the new bidders. IHH’s Chief Executive Officer Tan See Leng said in an interview that his company had offered to commit up to $1.1 billion to support Fortis.

“We are still evaluating all options,” he said. “We will see what’s the shareholders decision.”

Investors have been attracted to Fortis, which operates the largest chain of hospitals after leader Apollo Hospitals Enterprise Ltd. India has about half a hospital bed for every thousand people, according to the Organization for Economic Cooperation and Development, even as faster growth than many other large economies increases patients’ ability to pay for better health care.

©2018 Bloomberg L.P.

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