IHH bags Fortis for ₹4,000 cr

Fortis Healthcare Ltd (FHL) has approved IHH Healthcare Berhad's proposal to invest Rs 4,000 crore through preferential allotment at the rate of Rs 170 per share.

Malaysia-based IHH Healthcare has trumped Manipal-TPG combine to emerge as the winner in the race to acquire a stake in the beleaguered FHL group. 

“The proposed investment of Rs 4,000 crore offers a comprehensive equity solution addressing Fortis’ liquidity requirements, obligations towards RHT acquisition and providing an exit to private equity investors of SRL,” the company's filing to the stock exchanges said.

IHH is the world’s 2nd largest healthcare provider with a deeply entrenched global presence in the private healthcare space. 

The company will now call for a shareholder’s meeting at the earliest and look forward to the shareholder’s approval. 

“The accepted proposal offers a cash exit option to 26 per cent shareholders (on expanded share capital basis) through the mandatory tender offer of up to Rs 3,300 crore at a price of not less than Rs 170 per share. The transaction is subject to the shareholder’s approval and CCI approval,” the filing said. 

“The transaction is expected to be completed within 7 business days of receipt of shareholder’s and CCI approval which will be obtained concurrently with the shareholder’s approval and can take approximately 60-75 days.”  

Fresh bidding process

Pursuant to the board meeting held on May 29 earlier this year, the board of directors of Fortis Healthcare had initiated a fresh bidding process to meet the company's long-term and short-term objectives.

Three bidders IHH Healthcare, TPG-Manipal consortium, and Hero-Burman consortium were invited to participate in the process, and Fortis Healthcare had received an expression of interest from Radiant-KKR consortium. The diligence access and management interaction was offered to all the four bidders. 

Initial bid submission date was set for June 14, 2018 which was subsequently revised and communicated to all the bidders for July 3, 2018. This was subsequent to the delay in the announcement of audited accounts for financial year ending March 31, 2018. 

“On July 3, 2018, the company had received two binding proposals from IHH and TPG-Manipal consortium, and the board after considering the merits of both the bids and taking into account the recommendation of its Financial Advisors - Standard Chartered Bank and Arpwood Capital, and considering the legal advice from Legal Advisors - Luthra & Luthra Law Offices and Cyril Amarchand Mangaldas, is approving IHH’s offer,” the filing said.

“The board evaluated the bids received across various parameters, including commercial terms such as valuation, quantum of investment and schedule thereof.”

Debt refinancing

IHH’s proposal provides for refinance of debt to the extent of Rs 2,500 crore. Funds infused will be used towards completion of acquisition of assets of RHT, SRL private equity minority shareholders and short-term liquidity needs.

As opposed to this, Manipal-TPG consortium had proposed infusion of Rs 2,100 crore through preferential allotment at a price of Rs 160 per share, acquisition of stake held by private equity investors in SRL by the former for a consideration of Rs 1,134 crore, acquisition of assets of RHT partially by utilising the proceeds of preferential allotment and partially through debt financing, merger of Manipal Hospitals (“MHEPL”) with FHL at a valuation attributable to MHEPL of Rs 6,070 crore and valuation of FHL basis at a price per share of Rs 160.

A rights issue or a QIP to be floated post the merger to repay the bridge funding raised to complete the acquisition of assets of RHT was proposed.

Rationale for the deal

The rationale for approving IHH, Fortis board said was, “Significant primary funds infusion at highest available bid price of Rs 170 per share) and sufficient funds commitment for future requirements. 

Also IHH offered a significant deal certainty given a simpler transaction structure and requirement for fewer  approvals and a shorter timeframe, exit opportunity for shareholders given the open offer, in case they desire, offers potential to achieve scale driven synergies on operational and financing front, and integrates Fortis into a large global healthcare platform with potential synergies, the board said.

Ravi Rajagopal, Chairman, Board of Directors, said: “IHH proposal offers a more strategically and financially compelling proposition along with simplicity and certainty. The release of the Audited FY 2018 financial statements was a key milestone in underpinning the overall success of the transaction. As part of the process, we look forward to continuing the dialogue with our shareholders ahead of the EGM to approve the transaction.”

World's 2nd largest healthcare group

IHH Healthcare is the world’s second largest healthcare group by market capitalisation. It operates more than 10,000 licensed beds across 49 hospitals in 9 countries worldwide, offering the full spectrum of integrated healthcare services from clinics to hospitals to quaternary care and a wide range of ancillary services including medical education.

In Singapore, Parkway Pantai is the largest private healthcare operator with four JCI-accredited, multi-specialty tertiary hospitals - Mount Elizabeth Hospital, Mount Elizabeth Novena Hospital, Gleneagles Hospital and Parkway East Hospital. It also owns Parkway Shenton, a large network of primary healthcare clinics and services, ParkwayHealth Radiology, ParkwayHealth Laboratory and Parkway College.

In Malaysia, Parkway Pantai is the second largest private healthcare provider operating ten Pantai Hospitals, four Gleneagles Hospitals and ancillary healthcare services including Pantai Integrated Rehab and Pantai Premier Pathology.

India is its third home market with a network of 7 hospitals and 3 medical centres in the key cities of Chennai,Bengaluru, Hyderabad, Kolkata and Mumbai. Parkway Pantai also has more than 20 patient assistance centres across the globe, providing patients with seamless patient care and a one-stop referral source to its hospitals and services.

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