The board of Fortis Healthcare Ltd. approved Malaysian healthcare major IHH Healthcare BHD’s binding offer for a Rs 4,000-crore equity infusion, after it outbid the only other competing offer from TGP-backed Manipal Health Enterprises Pvt. Ltd.
As per the approved bid, Fortis Healthcare will issue 23.5 crore shares to IHH Healthcare at Rs 170 per share, India’s second-largest hospital services company today said in an exchange filing. The deal also offers a cash exit option to 26 percent shareholders on expanded share capital through the mandatory tender offer of up to Rs 3,349 crore at a price of not less than Rs 170 per share.
IHH will hold a stake of 31.2 percent to 57.21 percent, depending on the success of a mandatory open offer to the shareholders of Fortis Healthcare. The bid also provides for refinancing debt to the extent of Rs 2,500 crore. IHH will separately make an mandatory open offer to Fortis Malhar shareholders of up to Rs 29 crore at a price of Rs 58 per share.
Fortis had received binding bids from Malaysia’s IHH Healthcare and Manipal-TPG combine on July 3, the last day of submission for a fresh round of bids invited by a newly constituted board. The Munjal-Burman combine, which had earlier emerged as the preferred suitor for Fortis Healthcare, and Radiant Life Care had backed out.
The proposal will now require approvals from the shareholders and the Competition Commission of India, Fortis said. The approvals are expected to come through within the next 60-75 days. The deal’s completion will take another seven days after that.
This ends the third round of bids in the race for Fortis Healthcare--a company which saw at least five bidders, including the Munjal-Burmans, Manipal-TPG, KKR-backed Radiant Life Care and Fosun Health Holdings, vying for a stake in it since the last six months.
Chinese brokerage firm Haitong Securities believes that IHH's offer is "superlative", both in terms of its simplicity and structuring. "We specifically like the direct fund infusion into the company and the use of Debt funds to unwind the REIT structure, thus leaving significant portion of gains for minority," Haitong's Pharma Analyst, Rakesh Naydu, said in a note to clients. The deal will also save interest costs for the company, he wrote.
The takeover battle for Fortis Healthcare started earlier this year when founders Malvinder Singh and Shivinder Singh lost shareholding control due to mounting debt and after lenders invoked pledged shares. They stepped down from the board then amid allegations of siphoning funds.
Reacting to the development, shares of Fortis Healthcare rose as much as 4 percent to Rs 147 in opening trade today.
IHH Healthcare’s Bid
- Infusion of Rs 4,000 crore through subscription to the preferential allotment at a price of Rs 170 per share.
- Mandatory open offer for the public shareholders of Fortis of up to Rs 3,300 crore at a price not less than Rs 170 per share or price determined under Regulation 8 of SEBI’s SAST Regulations for 26 percent of the outstanding shares post issuance.
- Mandatory open offer for public shareholders of Fortis Malar Hospitals at a price as determined under Regulation 8 of the SAST Regulations.
- Proposal provides for refinancing debt to the extent of Rs 2,500 crore.
- Funds infused to be used towards completion of asset acquisition of Religare Health Trust and SRL Diagnostics, private equity minority shareholders and short-term liquidity needs.
Here's the company's rationale for approving the bid:
- Significant primary funds infusion at highest available bid price (Rs 170 a share).
- Offers significant deal certainty given a simpler transaction structure and requirement for fewer approvals and a shorter time frame.
- Exit opportunity for shareholders given the open offer, in case they desire.
- Offers potential to achieve scale driven synergies on operational and financing front.
- Integrates Fortis into a large global healthcare platform with potential synergies.