Fortis Healthcare Ltd said its board has approved selling its hospital business to private equity firm TPG Capital-backed Manipal Health Enterprises Pvt. Ltd, creating India’s largest healthcare services provider by revenue.
Fortis said in a statement late Tuesday evening its shareholders will get 10.83 shares of the combined entity for every 100 shares of Fortis they hold. The combined entity–Manipal Hospitals–will automatically be listed on the NSE and BSE after the deal, Fortis said.
The board has also approved the sale of a 20% stake in Fortis Healthcare’s diagnostics unit, SRL Ltd, for Rs 720 crore. Manipal is in talks to buy another 30.9% stake in SRL from other investors.
Besides Fortis, other shareholders of SRL include promoters Malvinder and Shivinder Singh, PE firms Jacob Ballas and Resurgence (formerly Avigo Capital), and International Finance Corporation.
Fortis will continue to hold 36.6% of SRL. The remaining 12.5% stake in SRL will be held by existing investors including management.
Fortis also said it will withdraw a scheme, announced in May 2016, to demerge SRL for a reverse listing of the firm with an existing group company. SRL is the second-largest diagnostics firm in the country, behind Dr Lal Pathlabs Ltd. It was valued at Rs 3,395 crore when a PE firm exited the company two years ago. The deal with Manipal values it around Rs 3,600 crore.
As part of the proposed transaction, Manipal promoter Ranjan Pai and TPG will together invest Rs 3,900 crore ($600 million) into the combined entity.
The funds will be used to buy the stake in SRL, support the proposed acquisition by Fortis of hospital assets owned by Singapore-listed RHT Health Trust and to grow the hospitals and the diagnostics businesses.
The combination of Manipal and Fortis will result in the creation of the largest provider of healthcare services in India by revenue with 41 hospitals in India, four hospitals overseas and more than 11,000 installed beds, the statement said. They will outrank Apollo Hospitals Enterprise Ltd, which is currently India's biggest hospital chain by revenue.
The proposed transaction is subject to approvals from shareholders, creditors, the Competition Commission of India, the Securities and Exchange Board of India, stock exchanges and National Company Law Tribunal (NCLT), and other customary conditions precedent.
“The companies make a compelling strategic fit in terms of complementary geographies, clinical strengths as well as a shared commitment to providing outstanding patient care,” said Ranjan Pai, chairman, Manipal Education and Medical Group.
The announcement ends months of speculation of Fortis Healthcare’s sale, which was 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 earlier 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. They will own 0.3% of the combined entity.
Earlier on Tuesday, Fortis, in a stock market disclosure, had said that it received an unsolicited non-binding acquisition proposal from Manipal Health.
Standard Chartered Bank and Cyril Amarchand Mangaldas acted as financial and legal advisers, respectively, to Fortis on the transaction. Allegro Capital, Goldman Sachs and Kotak Investment Banking were the financial advisers and AZB Partners was the legal adviser to Manipal.