Malaysia’s IHH Healthcare Bhd is set to launch a counter bid for Fortis HealthcareNSE 1.05 % Ltd putting it in direct competition with the TPG-backed Manipal Health Enterprises, which on Tuesday improved its offer, said several people with knowledge of the matter.
Southeast Asia’s largest hospital operator will be sending a formal proposal to the board of Fortis expressing its interest, maybe as early as Thursday. IHH is also expected to seek a meeting with the Fortis board to take matters forward. In case the board rejects the proposal, the plan is to directly approach shareholders with a voluntary open offer.
ET was first to report on March 14 that IHH had stepped back into the Fortis takeover battle nine months after pulling out of bilateral negotiations with erstwhile promoters Malvinder and Shivinder Singh, who were then in control.
Unlike the Manipal-TPG offer that called for a demerger of hospitals assets, the Kuala Lumpur-headquartered company is planning a cash offer for the listed Fortis, which has a market value of Rs 7,657.97 crore ($1.17 billion) the people said.
One of the sources said IHH may not be overly aggressive, offering a 5-10% premium to Manipal’s revised offer of Rs 155 per share, or a swap ratio of 13.1:100. But this could not be independently verified. The Fortis stock has appreciated 15% in just one week over speculation of an impending IHH counter offer.
Interestingly, IHH has decided to make a move before the stock market regulator, the Serious Fraud Investigation Office (SFIO) and law firm Luthra & Luthra have completed investigations into the accounts of Fortis.
“We decline to comment. We will make appropriate announcement(s) should there be any material developments,” said an IHH spokesperson.
IHH has decided to proceed after coming to know of the renewed offer by Manipal, said one of the persons cited above.
“The IHH mail to Fortis was to go out on Tuesday itself but was held back due to the new Manipal offer. Now that it has sunk in, IHH has decided to move forward at the earliest,” the person said.
IHH however does not want to be seen as a hostile contender, which is why it will approach the board. Its advisors have already been in touch with institutional shareholders including investors like Elliot Management and Yes Bank, the single largest shareholder, and will approach everyone directly only if the board rebuffs its proposal.
IHH is working with several foreign and Indian banks including Citi, HSBC, HDFC and Deutsche Bank.
Manipal and TPG on Wednesday revised their offer after consulting shareholders who had expressed dissatisfaction with the earlier terms. The new offer sent to Fortis board – with a more favourable open offer, tweaked structure and a proposed rights issue — is valid for seven days.
Manipal has put its “best foot forward” with the revised bid, said promoter Ranjan Pai. However, the stock market wasn’t enthused, with the Fortis scrip ending the day flat.
“The new proposal offers a higher value for Fortis’ hospital business and also makes a provision for the existing Fortis shareholders to participate in a rights issue of the combined entity,” said Saion Mukherjee of Nomura. “This will raise the stake of existing shareholders in Fortis in the combined entity to 50% before the rights issue.”
IHH has been waiting for Manipal to make the first move said a legal source aware of the ongoing developments. “That has set a benchmark,” he said.
Meanwhile, IHH has appointed a new chief executive officer for the country, as its looks to expand its footprint.
IHH’s renewed focus on Fortis follows failed negotiations with Global Health, the parent of Naresh Trehan-founded Medanta, for a potential deal valued at around Rs 5,800 crore, said sources. Last June, IHH pulled out of exclusive negotiations on Fortis just days before signing on the dotted line, worried about the implications of the legal battle between Daiichi Sankyo and the Singh brothers, unconvinced that it would gain undisputed ownership of the shares.
“Strong balance sheet for M&A with zero net gearing for FY18E (3% in FY17). IHH remains interested in brownfield M&A in India and Malaysia,” JP Morgan analysts said recently in a note.
“The Fortis deal could significantly enhance IHH’s position in India and enable it to enjoy greater economies of scale and scope, via an expanded network and greater discounts from procurement,” wrote John Cheong, analyst at Maybank last year when IHH made its first move.
