Fortis Healthcare board to decide on investment offers in April 19 meeting

While IHH says Fortis has declined to engage, the latter clarifies no decision yet

The board of directors of Fortis Healthcare will meet on Thursday to decide on investment offers received by the hospital chain.

Fortis has received two binding offers — a revised offer from TPG-backed Manipal Health Enterprises and a joint bid by Hero Enterprise Investment Office and the Burman family office — and a non-binding offer from Malaysia’s IHH Healthcare Berhard.

While IHH said on Monday Fortis had declined to engage with it on a takeover offer, citing binding agreements with other parties, Fortis informed the stock exchanges in the evening that its board had not taken a decision yet.

IHH, the world’s second-largest healthcare group by market capitalisation, had placed a non-binding expression of interest before the Fortis board on April 11, in which it had valued the company at Rs 160 a share. The offer had come a day after TPG-Manipal tweaked its offer to Rs 155 a share to soothe investors’ concerns. 

IHH had, however, said its offer was subject to “satisfactory completion of a limited due diligence”.

Fortis has, meanwhile, got a Rs 1.5 billion bridge loan from a non-banking financial company to run its operations smoothly till it finds a buyer.
 

In a press statement issued earlier on Monday, Fortis said, “Last week, Fortis received two binding offers — one is a revised offer from MHEPL and the second is a joint binding offer from Hero Enterprise Investment Office and the Burman family office —expressing interest in the company. In addition, the company has also received a non-binding expression of interest from IHH Healthcare Bhd.”

The board of directors would be meeting this week “to look at all eligible options and determine the future course of action that is in the best interests of the company, employees and shareholders”, it stated.

A source close to the developments said, “The board cannot really entertain non-binding bids at this stage, as that would drag the process further. 
 

Also, the real value of the company is in RHT (which owns the infrastructure of Fortis Healthcare), and it is critical to buy back these assets. Payment to RHT is already delayed. The Singapore-listed RHT would prefer a buyer that would honour the agreement between Fortis and them.”

Status check
 

Mar 1, 2018: Fortis releases its Q2, Q3 results, delayed after its auditor red-flagged certain related party transactions worth around Rs 5 bn

Mar 28: Manipal Hospitals and Fortis announce merger of their hospital businesses, creating the largest provider of healthcare services in India by revenue 

| Investors, shareholders express dissatisfaction over deal valuation

Apr 5: On an application moved by Daiichi Sankyo, the Delhi HC asks Fortis to file an affidavit

Apr 10: TPG-Manipal revises its offer, increasing it by 21%

Apr 11: Malaysia’s IHH Healthcare offers up to Rs 160 a share in a 

non-binding bid, up from Manipal’s Rs 155 a share

Apr 12: Sunil Kant Munjal of Hero Enterprise and the Burman family office propose to invest Rs 12.50 bn in two tranches

In February, Fortis and RHT Health Trust had entered into a definitive agreement to acquire RHT’s assets for an enterprise value of Rs 46.5 billion, including debts of Rs 11.52 billion, five years after the hospital chain had spun off these assets to the business trust. RHT’s portfolio comprises two hospitals, 12 clinics and four upcoming clinics that are operated by its subsidiaries. All these companies (RHT’s subsidiaries) will become Fortis’ subsidiaries after the proposed acquisition is completed.

TPG-Manipal is working on extending the validity of its revised offer, which was placed before the Fortis board on April 10, according to sources. The April 10 offer was valid for seven days.

Ranjan Pai, managing director and chief executive officer of Manipal Hospitals Enterprises, said if the full capital did not come in at this point, it would lead to a long-term value erosion for Fortis’ investors. 

“It is not a Rs 10-billion problem, it is a Rs 40-billion problem. Long-drawn-out negotiations may trigger the insolvency process for Fortis,” he said.
 

On April 12, Sunil Kant Munjal of Hero Enterprise and the Burman family office, which owns around a 3 per cent stake in Fortis Healthcare, had proposed to invest Rs 12.50 billion in two tranches to take care of the urgent financial needs of the company, which is said to have only Rs 700 million in cash.

Given the complex nature of the deal and probable delay in its closure, the Fortis stock was down 1.94 per cent to Rs 149 at the end of Monday’s trade.
 

Investor consultancy firm IiAS said, “To evaluate the bids, shareholders need more credence at the board-level: all four members of the current board have been associated with either the Fortis group, the Religare group, or Ranbaxy for long tenures in the past,” it said.

“The decision on which bid to accept cannot be driven by valuation alone. There are questions regarding subsequent control and the issues regarding the current promoters need to be dealt with,” IiAS said.