Hero-Burman's accepted bid for Fortis Healthcare a win-win

Fund infusion without any clauses at higher end of all bid valuations is key

With the Hero-Burman consortium chosen as the winner from the five bids for the control of Fortis Healthcare, this is expected to bring to an end uncertainty related to the acquisition. The consortium comprising promoters with proven track record taking over Fortis is looked at in positive light by experts such as G Chokkalingam of Equinomics Research and Advisory. The commitment of upfront equity infusion of Rs 8 billion (fresh equity shares implying valuations at Rs 167 per share) and Rs 10 billion through preferential issue of warrants (at valuations of Rs 176 a share) would mean a total infusion of Rs 18 billion into cash-strapped Fortis, without any riders. Notably, valuations are at the higher end of all bidders’ offers and close to fair value of Rs 185 for Fortis by ICICI Securities.  Manipal-TPG, Radiant-KKR and Fosun’s bids meant per share valuations of up to Rs 160, while IHH’s bid valuation was at Rs 175.  Experts such as S P Tulsian of sptulsian.com, too, look at the development in a positive light and feel the Fortis board has taken a prudent decision.

The stock prices of Fortis Healthcare, though, closed 2.66 per cent lower on Friday after the decision. The Street was building in a scenario of bidding and counterbidding to continue while a final decision has been taken by the board. Among other concerns for the Street was that Manipal-TPG had higher expertise in running large tertiary care centres while IHH is a global health care player, compared to the Munjal-Burman combine which may require professional management to run the business.

Further, some of the bids had an open offer clause, which would have meant cash exit at higher prices for willing shareholders, which is not there with the accepted bid. Also, many bids had proposed higher infusion, though with clauses. For instance, the IHH proposal committed Rs 6.5 billion upfront equity infusion and Rs 33.5 billion after due diligence, Manipal-TPG offered Rs 21 billion. Experts feel the Hero-Burman offer was clear without any clauses on fund infusion at later stages. 

The Fortis board indicated that it has considered the bids from the viewpoint of fund infusion certainty, without risks on future infusion. Further with the accepted bid, the stake in the diagnostic business will remain with the company, and a decision on monetising it can be taken later. But, there is no clarity on the timeline for acquisition of the Singapore-listed RHT Health Trust, which is important for driving Fortis profitability.