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TPG-Backed Firm Sweetens Bid for No. 2 India Hospital Chain

Updated on
  • Fortis hospital operations to be folded into Manipal Health
  • Terms of deal changed after Fortis investors disappointed

An Indian company backed by private-equity firm TPG moved to sweeten the terms of a deal to acquire the hospital business of Fortis Healthcare Ltd. after some investors raised concerns about the initial proposal.

Manipal Health Enterprises Pvt increased the value it will assign Fortis’s hospitals business by 10.6 billion rupees ($163 million), in a revised bid to separate that business from Fortis and merge it with its own operations. Manipal, which is controlled by Ranjan Pai and backed by TPG, submitted the offer to Fortis’s board on Tuesday.

The deal is the latest in the Fortis saga, with India’s fraud watchdog and stock regulator investigating the company after Bloomberg News reported the company’s founders took at least 5 billion rupees out of the firm without board approval. Brothers Malvinder Singh and Shivinder Singh have resigned from the company and have lost control of their shareholding due to mounting debt.

The revised bid values Fortis’s hospital business at about 60.6 billion rupees, only a little less than the value the proposal assigns to Manipal, giving Fortis shareholders a larger stake in the combined firm, a statement from the companies said.

Offer Raised

After the changes, Manipal’s offer would value Fortis at 155 rupees a share, up from 140 rupees earlier, according to a person familiar with the transaction, who asked not to be identified as the details are private. A representative for Fortis declined to comment.

“We hope that our revised offer addresses the concerns certain Fortis shareholders had raised and believe this offer is in the interests of all stakeholders, including Fortis’ shareholders,” Pai said in the statement.

Shares of Fortis climbed as much as 3.9 percent to 152.30 rupees, their highest intraday level since March 27. They traded at 147.55 rupees, up 0.7 percent, at 9:37 a.m. in Mumbai.

The new proposal calls for the merged entity to have a rights issue of up to 40 billion rupees to allow shareholders to infuse fresh capital into the business and increase their stakes if they choose, according to the statement. The original proposal called for Manipal and TPG to infuse 39 billion rupees.

Finally, the 30 percent stake in Fortis subsidiary SRL Ltd., a medical diagnostics provider which is now held by private-equity investors, will be purchased by Pai and merged with Fortis itself, according to the statement. The original proposal had Manipal buying that stake from the private-equity investors and then buying an additional 20 percent stake from Fortis to become SRL’s controlling shareholder. The revised proposal will remain valid for seven days, Manipal Health said.

Valuations Disappoint

The valuation for both Fortis’s hospital business and SRL are lower than what investors assign to listed peers of similar size like Apollo Hospitals Enterprise Ltd. and diagnostics chain Dr Lal PathLabs Ltd., according to Rakesh Nayudu, an analyst at Haitong International Securities Group in Mumbai. Also, a rights issue from the merged entity would dilute the value of the new equity Fortis shareholders get, he said.

“They’re giving with one hand and taking with two,” Nayudu said. “Clearly not much is on the table for minority shareholders.”

The revision comes after shares of Fortis fell 13 percent on a single day following the announcement of the transaction last month. Fortis, whose founders are battling allegations of financial irregularities, is India’s second-largest private hospital chain by market value.

The combined entity with 41 hospitals will have a wider presence across India. The two companies see opportunities as growing affluence in India allows more people to turn to private health care and as the government prepares to provide poor families free access to medical facilities. The companies have said they expect the transaction will help boost growth as both have made recent investments in new hospitals.

Fortis has gone through a shift in control as the Singh brothers’ stake in the company declined to less than 1 percent from 34.4 percent previously. The brothers’ holding fell as lenders claimed shares put up by the founding family as collateral after a decision by India’s top court.

(Updates with stock performance in seventh paragraph.)
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