TPG, Manipal sweeten deal for Fortis' India hospital business
Manipal Hospital Enterprises (MHEPL), an Indian hospital chain backed by TPG Capital, has submitted a revised buyout offer of INR61 billion ($933 million) for the hospital business of domestic rival Fortis Healthcare (FHL).
MHEPL is willing to pay the equivalent of INR116 per share, which represents an upward revision of about 21% on the previous offer. FHL's hospital business will be demerged into MHEPL, creating a listed entity in which FHL shareholders will receive equity.
A planned INR39 billion investment by TPG and MHEPL's parent Manipal Education & Medical Group (MEMG) has been cancelled. Instead MHEPL will issue shares amounting to up to INR40 billion on the public market following the merger.
Separately, MEMG will purchase a 30.9% stake in diagnostics chain SRL, a subsidiary of FHL, from existing private equity investors. The sellers have not been identified, but SRL's investors include Jacob Ballas Capital and the International Finance Corporation, which invested INR3.7 billion in the company in 2012. MEMG will take board and management control of SRL, which will remain a subsidiary of FHL.
MHEPL's revised offer is in response to concerns raised by some FHL shareholders about the proposed valuation of Fortis Hospitals. India-focused hedge fund Eastbridge Capital, which increased its holding in FHL to just under 10% following the original proposal, has reportedly led shareholders in opposition to the deal.
Japanese drug maker Daiichi Sankyo has also sought a temporary halt to the deal while it pursues a court case against FHL's former promoters Malvinder and Shivinder Singh. Daiichi claims the deal would dispose of a key FHL asset and thereby jeopardize the Singhs' ability to pay the INR35 billion it has been awarded in arbitration.
Fortis Hospitals and MHEPL are, respectively, the second and fourth-largest hospital chains in India. The combined company would be the largest provider of healthcare services in India by revenue, with 41 hospitals in India and four overseas, employing over 4,200 doctors and 9,300 nurses.
The sale of Fortis Hospitals will leave diagnostics, through SRL, as FHL's primary business. SRL is one of India's leading diagnostics chains, having conducted over 37.5 million tests in 2017, and it has a network of 356 laboratories and over 5,200 collection points.
FHL's total revenue came to INR47 billion for the year ended March 2017, up from INR44 billion the year before, according to its most recent annual report. Over the same period net profit grew from INR418 million to INR4.8 billion.
MHEPL was founded in 1942 and operates 10 hospitals in South India, in addition to one in Malaysia. TPG invested in MHEPL in 2015, paying INR9 billion for a reported 25% stake. A number of other PE investors have backed the company, according to AVCJ Research, including Temasek Holdings, True North, Kotak Private Equity and IDFC Private Equity.
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