Billionaire brothers Malvinder and Shivinder Singh are selling their privately held healthcare services firm Fortis Healthcare International, which operates hospitals in the Asia-Pacific region, to their majority-owned, public-listed firm Fortis Healthcare (India) for $665 million (Rs 3,274 crore) in the biggest ever deal in the Indian healthcare services industry.

The deal will make Fortis Healthcare the largest healthcare services firm in the country in terms of number of hospitals and bed capacity, overtaking Apax Partners-backed Apollo Hospitals. It will also pitchfork Fortis Healthcare as a strong competitor to Singapore-based Parkway Hospitals in the Asia-Pacific region.

Last year, Malaysian sovereign wealth fund Khazanah had pipped Fortis Healthcare over the control of Parkway in a bitter corporate takeover battle, following which the Singh brothers-owned firm had been vigorously acquiring small and mid-sized healthcare firms in the South-East Asia and Australasia.

The company disclosed on Tuesday that a committee of independent directors had recommended a valuation of $695.7 million, based on the fair value recommendation of the independent valuation agency Haribhakti & Co (a BDO International affiliate). However, the promoters agreed to a price of $665 million or around 4.4 per cent less.

Fortis Healthcare shares, trading at around Rs 144.3 per unit when the deal was announced last month, was quoting at Rs 128.95 a piece on Tuesday, up 3.6 per cent in a weak Mumbai market after the company announced the valuation of the transaction. At this price, the firm has a market cap of Rs 5,224 crore or a little over $1 billion.

The deal is expected to be completed by mid-December.

But the big question is whether Fortis Healthcare can fund such a large transaction, given that the firm had cash and bank balances of just Rs 38 crore as of March 31, 2011.

Shivinder Singh told CNBC-TV 18 that the company would initially finance it through debt on its books that would take the total debt of the combined business to around $1 billion. But the more interesting aspect would be the second leg of the deal. According to Shivinder, the group has a capital-raising plan which will be unveiled in the fourth quarter (ending March 31, 2012) and that will reduce the debt-equity ratio.

The proposed intra-group transaction will consolidate almost the entire healthcare business of the group under the public-listed firm as the promoters has recently sold their IPO-bound, privately held diagnostics firm Super Religare Laboratories (SRL) to Fortis Healthcare. Fortis Healthcare also has a separate public-listed subsidiary called Fortis Malar Hospitals.

Malvinder Singh, group chairman of Fortis Healthcare, said, “Our vision is to create a leadership position in integrated healthcare delivery in the pan Asia-Pacific region. This integration is a fundamental step in that direction. With the region’s increasing urbanisation, ageing population and greater access to new medical technologies, the demand for more and better healthcare is rising sharply. Fortis is keen to capture this opportunity. This integration provides us the model and the scale to harness the opportunity.”

The transaction involves an all-cash deal, which seems natural, given that the promoters already own around 81 per cent of Fortis Healthcare and need to bring it down in the near future to meet the public listing norms that mandate a minimum 25 per cent public float.

Fortis Healthcare International is a Singapore-based healthcare delivery company with presence in nine global locations including Hong Kong, Dubai, Australia, New Zealand, Canada, Singapore, Sri Lanka, Vietnam and Mauritius.

The firm, which has been pursuing an aggressive overseas acquisition strategy for over a year now, has presence in multiple verticals including primary healthcare, speciality day care healthcare, hospitals and diagnostics.

Among its assets, Fortis Healthcare International owns Quality Healthcare Ltd, the largest primary care network in Hong Kong with 580 centres; Dental Corporation Pty Ltd, the largest dental care network in Australia & New Zealand with 177 centres; Fortis Speciality Hospital, an under-construction specialty hospital in Singapore; a stake in the 350-bed Lanka Hospitals Corporation, Sri Lanka’s largest super speciality hospital, and the largest private pathology laboratory in the UAE.

Moreover, it has recently announced the acquisition of 65 per cent stake in Hoan My Medical Corporation, one of Vietnam’s largest private healthcare provider groups with over 1,100 beds across six hospitals.

As a consolidated firm, Fortis Healthcare will own over 74 hospitals with more than 12,000 beds, 580 primary care centres, 191 day care speciality centres, 190 diagnostic centres and a base of over 23,000 employees, making it among the largest integrated healthcare delivery networks in the Asia-Pacific. The combined entity will have strength of over 4,000 doctors. Law firm Amarchand Mangaldas advised on the proposed acquisition. Rajah & Tann LLP and Allens Arthurs Robinson were the Singapore and Australian counsels, respectively.

The group had earlier announced a new management structure for the combined entity, with the group chief Malvinder Singh acting as the executive chairman of Fortis Healthcare while his younger brother Shivinder Singh would be the executive vice-chairman.

Vishal Bali, who has been heading operations of Fortis Healthcare International, will be the global CEO of Fortis Healthcare. The Indian operations will be headed by Aditya Vij, as India CEO, who will focus on the Indian expansion while the international business will be headed by Eng Aik Meng who will focus on all expansions outside the country. Global functional heads will manage the key business functions of the combined entity.

Late last year, Fortis Healthcare’s CEO Bhavdeep Singh resigned from the company after serving it for less than two years. Incidentally, he had left Reliance Retail to join Fortis. Two months ago, the firm appointed Aditya Vij (a former country head for General Motors India) from infrastructure firm Punj Lloyd.

with an in-depth analysis on the strategy flip-flop, consolidation play and how this deal will pitch Fortis to take Khazanah controlled Parkway head on as the biggest Asian player in the healthcare services industry.

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