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Manipal Hospitals has revised its offer for Fortis hospitals, sweetening some of the deal terms. Under attack from investors and faced with a possible counter bid, Manipal Hospitals released the revised deal terms, offering a higher valuation for Fortis hospitals and a chance for existing investors to participate in Rs 40-billion rights issue. Manipal Education and Medical Group Chairman Ranjan Pai tells Sohini Das and Aneesh Phadnis that the revised deal terms addresses all shareholder concerns. Edited excerpts.
Fortis shares were flat during the day’s trading on Wednesday. Do you think investors are happy?
I cannot really comment on why the stock has not gone up, but in general markets are down. I guess people are analysing the offer. Whatever discussions we have had with shareholders has been positive.
How have shareholders reacted to the new offer?
When we had engaged with shareholders after the first offer, they had raised three primary concerns: First was structure, then valuation and finally how much money they were putting in the company. We have now addressed all the three concerns. As for SRL (the diagnostic arm of Fortis), Manipal is now buying out only the private equity part and not the additional stake from Fortis, which would have made Fortis Healthcare Ltd (FHL) an investment holding company only. So SRL is not undervalued. Also, once the demerger of Fortis' hospital business into Manipal is complete, SRL could be merged back into Fortis, and be listed. Shareholders felt that the hospital business was being valued at a discount. We have now revised that offer (analysts expect an upward revision of 21 per cent for Fortis’ hospital portfolio). Now there is also a plan to launch a Rs 40-billion rights issue for all shareholders after the demerger, which will help existing Fortis shareholders to participate (according to their shareholding) and not get diluted at a discounted valuation. The rights issue addresses concerns of minority shareholders.
What are your plans for RHT Health Trust; how do you plan to value it?
We will find the right funding solution for RHT purchase. After the Competition Commission of India (CCI) and shareholder approvals come in, we may also raise a bridge loan for that purpose. As for the valuation, Fortis Healthcare had signed a binding term sheet to acquire the entire assets of RHT (for an enterprise value of Rs 46.5 billion). We would honour that.
What is your take on the potential bidders (like IHH Healthcare) who may come in with counter-offers? Will you revise your bid further?
No, not really. We are the only ones to have given a binding offer that also looks at long-term value creation. Our chances have improved as we have made a compelling offer and we think this would make investors happy. Anybody who wants to come in now has to put a voluntary general offer. We have put our best foot forward. There is a window of around 45-days, after which there would be an extraordinary general meeting.
Fortis has several pending investigations and legal matters. Do you think this may deter potential bidders?
I cannot really comment for others. Anyone who wants to bid for the Fortis asset would be aware of these details. As for the investigations that are on, I cannot really comment on those. The Daiichi case is between the company and Singh brothers. For the last 18 months, Fortis has gone through a lot. Thousands of jobs are at stake. It is about time that someone should step in and put in some capital. We are trying to do that.
Will integrating the Fortis assets (multi-location and multi-cultural) be a challenge for you?
Any integration is a challenge. We are focussing on that. We need to build a strong team internally. We are confident of working it out. We are looking at long-term value creation.