M&A Critique

Fortis Healthcare to Segregate Hospitals & Diagnostics Businesses

On Aug 19th 2016, Board of Directors of Fortis Healthcare Limited (FHL) granted in principal, approval to demerge diagnostic business of Fortis Group including the business of its majority-owned subsidiary SRL Limited (SRL) into Fortis Malar Hospitals (FMHL).

An exit will be given to PE investors of SRL

The scheme is a composite scheme of arrangement and amalgamation and provides for the business transfer by the way of slump sale, demerger and merger.

The management feels the transaction will unlock the value for all shareholders.

Fortis Healthcare Limited (FHL): Leading integrated healthcare delivery service provider in India. Its business includes that of managing and operating a network of multi-specialty hospitals and providing preventive healthcare and diagnostics services. FHL has a turnover of Rs 759 Crores Net worth of Rs 3608.26 Crores. FHL Revenue break Up : Hospital Business Rs 737 Crores (82% ) & Diagnostic business Rs 137 Crores (18%)

SRL Limited (SRL): Subsidiary of FHL. Engaged in establishing, maintaining, and managing clinical reference laboratories and other laboratories for providing testing and diagnostic services. SRL has a turnover of Rs 620.31 Crores Net worth of Rs 856.42 Crores.

Fortis Malar Hospitals Limited (FMHL): Engaged in the business of running and operating hospitals consisting of hospital operation and management, in – patient healthcare services, Providing diagnostic & pathology services, emergency healthcare services. FMHL has a turnover of Rs 137.34Crores and Net worth of Rs 95.58Cr.


The structuring to be done in the following manner:

  • The hospital undertaking business of FMHL shall be transferred to FHL as a going concern by the way of slump sale, in lieu of lump sum consideration paid by FHL to FMHL for Rs 43 Crores. Market cap of FMHL as on Aug 18 was 105 crores. Hence the remaining value of Rs 62 Crores belongs to the diagnostic business at FMHL.  FMHL will exit from patient care business and will focus on only diagnostic business. No change in shareholding at FHL on slump sale.
  • The diagnostic undertaking of FHL to be transferred to FMHL (Including investments held by FHL in SRL-56.4% stake) by the way of demerger in lieu of the issuance of equity shares by FMHL to the shareholders of FHL. Consideration for the demerger, FMHL shall issue and allot equity shareholders of FHL, 0.98 equity shares of Rs 10 each of FMHL for every one equity share of Rs 10 each held by them in FHL. Shares issued in the process by FMHL, 51.2cr equity shares
  • Post above demerger, an amalgamation of SRL into FMHL & consequent issue of shares by FHML to shareholders of SRL post cancellation of SRL ‘s 56% stake held by FMHL. FMHL will allot equity shares to the shareholders of SRL in the ratio of 10.8 equity shares for 1 equity share held by them in in SRL. As a result, FMHL will issue additional 37.8 Cr shares to shareholders of SRL (except FHL).
  • Post the step C, FMHL will be renamed as SRL and would have enhanced equity base of 91 crores. Out of which 56% of the shares will be held by Fortis shareholders.

The appointed date for the scheme is Jan 01, 2017. The demerger will give an exit option to PE investors who had invested in SRL a few years back.

Upon the scheme being effective, Main objects of Amalgamated Company shall stand amended and the name of the Amalgamated Company shall stand changed to SRL.

Long stop date: In the event the scheme failing to take effect from Dec 2017 or later date, the scheme shall stand cancelled and revoked.


Slump sale was undertaken to sell the hospitality business


  • Simplified corporate structure
  • Both the hospitals and diagnostics business have distinct operating model
  • Pursue future growth opportunities in respective segment
  • Both Businesses to move forward independently with greater focus and specialization
  • Leveraging their respective capabilities and strong brand presence
  • Value unlocking for shareholders
  • Benefit from potential synergies and incremental operational efficiencies from combining similar and related businesses
  • Dedicated management focuses on respective businesses


  1. Fortis Healthcare Limited (FHL)
    Particulars No. of Shares % Holding
    Promoter & Promoter Group 33,01,41,948 63.1%
    Public 19,31,57,533 36.9%
    Total 52,32,99,481

    Table 1: Pre & Post Shareholding Pattern (FHL)
    Note :
    Fully diluted shares assuming FCCB & Outstanding ESOP conversion
    Pre and Post Shareholding pattern remains the same.
    Face Value Rs. 10 each

  2. Fortis Malar Hospital Limited (FMHL)
    Particulars No. of Shares % Holding
    FHL Promoter 1,17,52,402 62.4%
    Other Promoters 800 Negligible
    Public 70,71,057 37.6%
    Total 1,88,24,259

    Table 2: Pre Transaction Shareholding Pattern (FMHL)
    Face Value Rs. 10 each

  3. SRL Limited (SRL)
    Particulars No. of Shares % Holding
    FHL Promoter 2,79,38,743 56.4%
    Other Promoters 26,25,449 5.3%
    Public 3,07,18,317 38.28%
    Total 8,02,55,096

    Table 3 : Pre Transaction Shareholding Pattern (SRL)
    Face Value Rs. 10 each


  1. Fortis Healthcare Limited (FHL)  – Same as Pre-Transaction Shareholding Pattern.
  2. Fortis Malar Hospital Limited (FMHL)
    Particulars No. of Shares % Holding
    Promoter & Promoter Group 38,14,70,755 41.92%
    Public 52,84,69,636 58.08%
    Total 90,99,40,391  

    Table 4: Post Transaction Shareholding Pattern


Name Market Cap (Cr) Sales Net Profit Total Assets Book Value P/BV
Fortis Healthcare 8035 611.59 (73.51) 4652.83 86.29 2.05
Apollo Hospital 18,581 5,409.07 369.44 5,532.09 248.24 5.37
Healthcare Global 1848 470.21 (2.84) 548.35 33.27 6.41
Narayan Hurdalaya 6478 1463.63 56.78 1092.87 47.01 6.67
Poly Medicare 1720 394.48 47.31 285.29 51.83 7.62
Kovoi Medical 702 465.31 40.43 301.87 159.04 5.04
Lotus Eye Care 42.0 31.13 0.10 49.96 23.79 0.83
Dr. Lal Path labs 9855 765.4 125.76 479.20 61.22 19.3
Thyrocare Tech. 3333 235.14 58.75 375.39 409.67 8.88

Table 5: Financial Comparison Similar Companies (All Figures in INR Crores)


Both the Diagnostic business and Hospital business have distinct operating model and each of them present’s strong growth opportunity given the macro fundamentals of the healthcare industry. These businesses since their inception have achieved significant size and scale in their respective business segments and have crossed an inflection point and are poised for bigger things.

The transaction should unlock the value for all shareholders.
The restructuring carried out is strategically apt to have the businesses restructured under separate entities to which can facilitate better management focus, gain from significant operational synergies leading to value creation for shareholders.

The restructuring undertaken also provides an exit opportunity to private equity investors who had earlier invested in SRL.

Please feel free to share/retweet the article and as always you can write down in the comment box below for anything related to the article. We would love to answer.

Kedar Kingi