After months of searching for an investor, Fortis Healthcare’s Board of Directors unanimously decided on Friday to pick the Rs 4,000 crore investment proposal of IHH Healthcare Berhad instead of the one proposed by TPG-Manipal consortium. “The Board of Directors of Fortis Healthcare Limited (FHL) unanimously decided to recommend the binding investment proposal from IHH Healthcare Berhad (IHH) to invest Rs 4,000 crore by way of preferential allotment at a price per share of Rs 170,” Fortis Healthcare said in its statement. Fortis has picked IHH’s offer over rival TPC-Manipal consortium’s offer that included Rs 2,100 crore infusion and merger of Manipal Hospitals with Fortis Healthcare.
IHH, which will get 31 per cent stake in Fortis Healthcare through the preferential allotment of shares at Rs 170 apiece, will make an open offer for an additional 26 per cent at the same price. The open offer will cost another Rs 3,300 crore. Based on the offer price of Rs 170 per share, the implied equity valuation for 100 per cent of Fortis Healthcare is Rs 8,880 crore. Ravi Rajagopal, chairman, Fortis Healthcare said: “Clearly, we would have liked to see a better price, maybe closer, if not more than what we saw in the last round. But keep in mind that we also allowed the bidders to put in conditions relating to the audit qualifications. Not only you have to see the audit report, which just highlighted some of the issues that we became aware of through the investigation report..and quite rightly, they have factored this in their calculations.”
In first round, Munjal-Burman combine had offered to invest Rs 1,800 crore directly into Fortis Healthcare, through the preferential allotment of equity and warrants, in order to pick 16.8 per cent stake in Fortis. On May 10, Fortis Healthcare’s board picked the acquisition offer made jointly by Sunil Kant Munjal of Hero Enterprise and the Burman family, giving it victory in a race that saw the combine beating out bids by IHH, TPG-Manipal consortium and Radiant Life Care-KKR. However, this decision was later scrapped and fresh bids were invited on May 29.
On June 29, Fortis Healthcare said that markets regulator Sebi has ordered a forensic audit in the matter of the company, which admitted to systemic lapses in giving Rs 494.14 crore loans to firms controlled by erstwhile promoters — Malvinder and Shivinder Singh. Deloitte Haskins & Sells LLP, which is the independent auditor of the Fortis Healthcare, on July 7 stated that the Fortis’ Board of Directors was unable to determine whether a fraud has occurred in the company or not.
The offer is at 20 per cent premium to current market price, Fortis stated on Friday, adding the IHH proposal offers significant deal certainty given a simpler transaction structure and requirement for fewer approvals and a shorter timeframe. It also provides an exit opportunity for shareholders through the open offer, in case they desire, Fortis said.
Talking about the management structure under IHH, Rajagopal said: “I don’t think this (deal) will change the management structure at all. Of course, when the IHH do come in as a majority investor, they may review the talent bench and try to supplement or augment it. But, otherwise as things stand, there are no moves to change any of the current structure.” Friday’s IHH-Fortis deal is expected to be completed within seven business days of receipt of shareholders’ approval. The approval by Competition Commission of India can take approximately 60-75 days, according to Fortis Healthcare.
IHH managing director and CEO Tan See Leng, said the acquisition would significantly increase the company’s reach across the Indian subcontinent, complementing its existing capabilities in the high-value quaternary care segment. Leng added that “with a clear and holistic strategy in place, we have developed a 100-day turnaround plan to stabilise Fortis”.