Fortis deal heats up with IHH making a better offer; stock jumps 4%

IHH Healthcare Berhad, the world’s second largest health care group,  has entered the contest to acquire control of Fortis Hospitals. It has increased the price earlier offered by  Manipal Hospitals.

IHH gave a non-binding offer to the board of Fortis Healthcare on Wednesday, at a valuation of Rs 160 a share for its hospital and diagnostic business. IHH has sought time from Fortis management to update its due-dilligence.

This bid comes a day after private equity major TPG-backed Manipal Hospitals tweaked its offer to soothe investor concerns. According to revised offer, Fortis Healthcare’s equity valuation is Rs 155 a share. 

Neither Fortis Healthcare nor IHH would comment on the new bid. In an e-mailed response, the Malaysia-headquartered hospital chain said it would make appropriate announcements in case of any material developments.

Over several months, a host of private equity firms and hospital chains have been on the lookout to acquire control of Fortis. Last month, Fortis and  Manipal Hospitals announced a merger, thereby creating the largest provider in India of healthcare services by revenue.

It ran into rough weather, with financial investors and hedge funds protesting at the valuation offered for the Fortis group's hospital business in the deal. On Tuesday, Manipal revised the terms with  a valuation of Rs 155 a share. 

Ranjan Pai, managing director and chief executive officer of Manipal Hospitals Enterprises, said they had made a 'compelling offer'. They did not wish to revise the offer further upward, he added. "We have done what we had to do and what we feel is a good valuation for the asset. It is on the board (of Fortis) to take a call," he said.  Sources said IHH was doing due-dilligence with Fortis for nine months and working closely with the company. 

"It is surprising that they have made a non-binding offer at this stage and one which says it values Fortis shares at up to Rs 160 a piece. TPG-backed Manipal has made a binding bid," said a source.  He added it showed a lack of conviction from their side, that after eyeing Fortis for 18 months, they have not placed a binding bid. 

Sources in Fortis said during the long due-dilligence process, none of the interested parties had suggested layoffs of staff. "A hospital or a diagnostics business is not just infrastructure but is about its human capital. While none of the TPG-Manipal or IHH offers mention it in explicit detail but no mass retrenchment is expected," the source said. 

Shares of Fortis Healthcare jumped over 4 per cent on Thursday amid reports that IHH Healthcare is planning to bid for the company. The stock gained 4.17 per cent to end at Rs 153.80 on the BSE. At the NSE, shares gained 4 per cent to close at Rs 153.90. The market valuation rose by Rs 3.19 billion to Rs 79.76 billion.