Fortis gets acquisition bid from TPG-backed Manipal Health
Photo Credit: Shah Junaid/VCCircle

Fortis Healthcare Ltd has received an unsolicited non-binding acquisition proposal from Manipal Health Enterprises Pvt. Ltd, backed by private equity firm TPG Capital, amid media reports of a likely merger between the two hospital chains.

The company’s board is evaluating the proposal and hasn’t made any decision, Fortis said in a stock market disclosure. It didn’t disclose the contours of the proposal.

Shares of Fortis fell 3.5% to Rs 142.45 on the BSE on Tuesday, in contrast to the benchmark Sensex’s 0.33% gain.

Reports of a likely sale of Fortis, India’s second-largest hospital chain, have been doing the rounds for months now. Malaysia-based hospital operator IHH Healthcare is also said to be in the fray to buy Fortis.

On Monday, The Economic Times reported that Manipal and TPG were likely to acquire Fortis through a two-step transaction. Fortis would first demerge its healthcare unit into a separate listed entity that would eventually be merged with Manipal Health. Manipal would get listed on the stock exchanges as a result.

In the second step, the Manipal-TPG consortium would acquire a 51% stake in diagnostic chain SRL Ltd from the existing private equity investors and Fortis. The report added that SRL’s minority shareholders had yet to approve the proposed transaction.

The combination of the two hospital chains would rival India’s largest hospital firm, Apollo Hospitals Enterprise Ltd, which has a market value of Rs 14,333.37 crore.

Manipal’s offer comes at a time when Fortis founders Malvinder Singh and Shivinder Singh, until recently counted among India’s billionaires, have all but lost control of the healthcare firm after their stakes plunged to low single digits.

The Singh brothers now own a stake of only 0.77% in Fortis compared with nearly 25% at the end of December 2017, stock-exchange filings show.

Over the past year, the brothers have sold a slew of businesses under their flagship financial services firm Religare Enterprises Ltd such as global alternative asset management, health insurance, broking and wealth management.

However, Japanese drugmaker Daiichi Sankyo has been trying to stop the sale of Fortis on the grounds that it would hinder its ability to enforce an arbitration award against the brothers, who Daiichi alleges withheld crucial information when they had sold drugmaker Ranbaxy in 2007. This had led to court orders against the sale over the months.

In March 2017, the Delhi High Court directed the Singh brothers to disclose their assets after Daiichi asked the court to stop them from selling stakes in Fortis and Religare. In August 2017, the Supreme Court prohibited them from selling a stake in the hospital chain, landing a blow to their efforts to find a buyer for the company.

The Delhi High Court, in January, dismissed the brothers’ objections to a Singapore arbitration panel’s ruling that had asked them to pay Rs 3,513 crore ($550 million) to the Japanese drugmaker. This led to the Singh brothers resigning from the board of Fortis in February.

The sharp drop in the Singh brothers’ stake and their resignations from the company boards will expedite the sale process of both Fortis and Religare, investment bankers say.

“By itself, Fortis Healthcare is a good asset. Once the investigation into the frauds is complete, there should be more clarity for the buyers and a deal should go through,” a senior investment banker had told VCCircle previously.

Separately, Fortis is acquiring assets held by Singapore-listed RHT Trust. The transaction, announced last November, is likely to arrest the decline in its earnings, making Fortis more attractive for buyers.

For the financial year 2016-2017, Fortis reported an 8.7% jump in consolidated total income to Rs 4,574 crore. This includes revenue of Rs 4,508 crore from India operations and the remaining from international operations. Its net profit rose 15-fold to Rs 426 crore from Rs 28 crore because of a one-time gain.

As of March 31, 2017, the company had a network of 45 healthcare facilities (including projects under development), with about 4,800 operational beds and the potential to reach over 9,000 beds.

Manipal Health

Founded in 1991, the company operates 15 multi-specialty hospitals in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Goa, according to its website. It also manages five teaching hospitals in Karnataka and Sikkim, as well as several fertility clinics across the country. The chain also owns and operates a hospital in Malaysia and manages a clinic in Nigeria.

Manipal Hospitals’ consolidated revenue grew at a compound annual pace of 23% between 2013-14 and 2015-16. Its earnings before interest, tax, depreciation and amortisation recorded annualised growth of 30% during this period. The firm clocked revenue of Rs 1,262 crore and EBITDA of Rs 172.2 crore for the year ended 31 March 2016. Its financials for 2016-17 are not yet in public domain.

In August last year, Singapore state investor Temasek Holdings bought a minority stake in Manipal from private equity investors Faering Capital and True North, VCCircle reported at the time.

The deal valued Manipal Health, a little above Rs 6,000 crore ($940 million) at that time. TPG had invested in the company in 2014.

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