Fortis Healthcare gets surprise joint bid from Hero’s Munjal, Dabur’s Burman

By Joseph Rai

  • 12 Apr 2018
Credit: Shah Junaid/VCCircle

Fortis Healthcare Ltd said on Thursday it has received an unsolicited binding offer from Hero Enterprise Investment Office of the Munjal family and the Burman Family Office of consumer goods firm Dabur, making them the third contender to buy the hospital chain.

The development came barely two days after Manipal Hospital Enterprises Pvt. Ltd raised its takeover offer for the hospital business of Fortis and amid reports that Malaysia’s IHH Healthcare could also bid for Fortis.

Hero Enterprise Investment Office and the Burman Family Office have jointly proposed to invest Rs 1,250 crore ($192 million) into the company through a preferential allotment, subject to certain conditions as mentioned in the offer letter, Fortis said in a statement. The company is evaluating the proposal, it added.

Fortis said the offer involves an infusion of Rs 500 crore immediately and Rs 750 crore after due diligence to be completed within three weeks.

Hero Enterprise is led by chairman Sunil Munjal, part of the family that runs Hero MotoCorp Ltd, India’s biggest two-wheeler maker. The Burman family is the promoter of Dabur India Ltd. The two family offices hold around 3% of Fortis through their affiliates and group entities.

According to the Munjal-Burman offer, Fortis would issue preferential shares to the two investors at Rs 156 apiece. This is a shade better than Manipal’s revised offer that valued Fortis at Rs 155 a share.

Munjal-Burman said that their offer is “simple and does not envisage any changes to the current structure, operations, and assets” of Fortis. They added that their offer can be implemented in a fairly short period of time and will allow Fortis to focus on stabilizing operations and on growth. The deal with Manipal is likely to take up to 12 months for completion.

The statement said that the Hero and the Burmans together had approached Fortis in the last week of March to discuss the possibility of a business or M&A transaction. However, the discussions were unsuccessful.

"…as shareholders, we are concerned regarding the company’s (Fortis) future, as it presently finds itself at a very critical juncture in its existence. While we have strong faith in the potential of the company, the various issues faced by the company over the last many months are a cause of grave concern," the statement said.

Shares of Fortis on Friday were up 0.8% at Rs 155.05 apiece in afternoon trade in a flat Mumbai market.

The new bid has given a new twist to the Fortis deal, which announced last month that its board had approved selling its hospital business to private equity firm TPG Capital-backed Manipal Health.

The Fortis sale has been delayed by the legal cases against its founders — Malvinder Singh and Shivinder Singh. The Singh brothers, until recently counted among India’s billionaires, lost control of the healthcare firm after their stakes plunged to low single digits.

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

Manipal's revised offer followed reports of discontentment among Fortis shareholders over valuations. Ranjan Pai, chairman, Manipal Education and Medical Group, in an interview to VCCircle had said that given the complexity of the deal structure the relative valuation has not been properly understood.

Subsequently, amid reports of growing disappointment over Fortis shareholders and a possible counter bid from IHH, Manipal sweetened the offer. The revised offer valued Fortis’ hospital business at Rs 6,061 crore (Rs 116 per share), up almost 21% from the previous offer. Manipal Hospital’s equity valuation remained as before at Rs 6,070 crore.

The revised proposal also entails a change in the offer for Fortis Healthcare’s diagnostics unit SRL. Manipal Hospitals parent Manipal Education and Medical Group will purchase a 30.9% stake of SRL from private equity investors, and will take on board and management control of the business. Fortis will continue to hold a 56.6% stake in SRL.

The original proposal involved Manipal agreeing to buy a 50.9% stake in SRL. This included 20% from Fortis and 30.9% from PE investors. Fortis was to hold 36.6% of SRL as per the first offer.

A rights issue of Rs 4,000 crore will also be initiated following the demerger to support the proposed acquisition of hospital assets owned by RHT Health Trust, Manipal said. This will provide an opportunity to Fortis shareholders to participate on an equal basis with MEMG and TPG to fund the capital needs of the combined hospital business.

A merger between Manipal and Fortis has the potential to create India’s largest healthcare services provider by revenue outranking hospital giant Apollo Hospitals Enterprise Ltd.

Meanwhile, IHH Healthcare, majority-owned by Malaysian sovereign wealth fund Khazanah Nasional Berhad, is planning to make a formal offer to acquire Fortis, Bloomberg reported, citing people aware of the development, earlier this week.

IHH Healthcare, which had held a stake in Apollo Hospitals earlier, is planning an all-cash deal and will consider taking the offer directly to Fortis’ shareholders if it gets rejected by the board, according to the report.

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