Malaysia's IHH Healthcare Won The Takeover Battle of Fortis Healthcare

Fortis Healthcare board approved Rs  4,000-crore offer from Malaysia's IHH Healthcare for 31.1 per cent stake in it, valuing the cash-strapped firm at Rs  8,880 crore thus ending months of a takeover battle.

IHH Healthcare, which is expected to gain majority control of India's second-largest hospital chain after a mandatory open offer for an additional 26 per cent stake, said in the long term it would rebrand Fortis hospitals into its own Gleneagles chain.

The Malaysian healthcare major which offered to infuse the capital at Rs  170 per share pipped rival Manipal-TPG combine's Rs  2,100-crore offer at Rs  160 per share.

"The transaction is expected to be completed within seven business days of receipt of shareholders' and CCI's approval, which will be obtained concurrently with shareholders' approval and can take approximately 60-75 days," Fortis Healthcare said in a statement.

Commenting on the development, Fortis Healthcare Chairman Ravi Rajagopal said the IHH proposal offered a more strategically and financially compelling proposition along with simplicity and certainty.

"We are now putting Fortis on a path of survival, future growth and prosperity in partnership with IHH," he said in a conference call.

IHH Managing Director and CEO Tan See Leng said the company is willing to infuse more funds into Fortis if required.

"Currently we feel that Fortis would require about Rs  5,800-6,000 crore of funding. We are putting in Rs 4,000 crore," he said in a separate conference call.

Leng further said,"We are hoping to refinance and get some additional debt in the company and even after that if needed by Fortis, IHH remains open to exploring options for raising additional capital in consultation with other shareholders, including by way of rights issue, any other strategic solution involving capital markets or otherwise."

When asked about using the Fortis brand, which is currently under litigation, he said,"On the branding we have a global brand, Gleneagles which we are very happy to use in India as well. We are already using it in India.

"We will respect all the licences and agreements that Fortis currently has for the brands but in the long term and going ahead we would like to rebrand the Fortis hospitals to our own brand, Gleneagles."

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.

The fund infusion from IHH will address Fortis' liquidity requirements, including funding for RHT acquisition and for providing exit to private equity investors of diagnostics arm SRL.

IHH said its open offer for Fortis is expected to commence in August/September 2018, subject to regulatory approvals, including Competition Commission of India, Sebi and RBI, and close by third quarter of 2018. The open offer will cost another Rs  3,300 crore.

IHH's offer is the third one that Fortis has approved this year.

Founders Malvinder and Shivinder Singh's loss of shareholding due to debt triggered the bidding war for cash-strapped Fortis. Also, there were allegations that they took funds from the company, a charge that the duo, who have since left the company, denied.

The Fortis board had first accepted a merger offer from Indian firm Manipal Health Enterprises and US private equity firm TPG Capital. The bidding war, however, escalated with four other suitors throwing their hats in the ring.

Fortis then approved a Rs  1,800 crore investment offer from a consortium of Munjals-Burmans combine, which was not approved by shareholders, forcing it to re-open the bidding process.

The newly reconstituted board of Fortis had on May 29 initiated a fresh bidding process to meet FHL's long-term and short-term objectives.

Three bidders (IHH, TPG-Manipal consortium, Hero-Burman consortium) were invited to participate and while Fortis received an expression of interest from Radiant-KKR consortium.

The diligence access and management interaction were offered to all the four bidders, Fortis said.

IHH Healthcare Berhad currently operates over 10,000  beds across 49 hospitals in nine countries worldwide.

Fortis on the other hand has 45 healthcare facilities, including projects under development, in India, Dubai, Mauritius and Sri Lanka with approximately 10,000 potential beds and over 368 diagnostics centres