IHH close to bagging Fortis with $1.1 bn bid

Malaysian firm to pay ₹40 bn at ₹170 a share for 31% stake

Malaysia’s IHH Healthcare Bhd is set to take control of India’s Fortis Healthcare after its bid of up to $1.1 billion was chosen over a rival’s, giving it ownership of over 30 hospitals amid a private healthcare boom in India.

IHH’s ₹170 per share offer for as much as 57% of Fortis was chosen on Friday over a joint bid from Indian firm Manipal Health Enterprises Ltd. and U.S. private equity firm TPG Capital.

The offer represents a roughly 20% premium to its last closing price and caps a months-long bidding war for control of the Indian company that drew interest from domestic and international suitors.

IHH’s offer is the third one that cash-strapped Fortis has approved this year, with a previous offer being shot down by shareholders. However, this time there is more confidence of the deal being approved.

“The cash repairs the balance sheet and the tender offer should clean out a lot of the banks that could have led to an overhang of stock, which the other offer [TPG-Manipal] didn’t have … We plan to support it and think the bid will go through,” an investor among Fortis’s top 10 told Reuters.

IHH’s offer is slightly lower than the ₹175 offer it had proposed earlier, but the investor said it was “not a bad outcome considering how long it has taken and how badly managed the process has been.”

Fortis shares rose 4% to ₹147.80 on the BSE on Friday, which analysts attributed to IHH’s win and offer price coming in as expected. Four analysts told Reuters they expect the deal to finally get shareholder approval.

“It’s a very straightforward deal. Given the problems Fortis has, this is the best they can get at this time,” said Nitin Agarwal, an analyst with IDFC Securities.

Fortis has struggled with a cash crunch, rising debt, and image problems.

Power struggle

Indian regulators are looking into allegations that its founders took funds from the company. The two founders, who have since left the company, deny wrongdoing.

But the company’s assets are still considered attractive thanks to rising private healthcare spending in India. Also, the government aims to expand insurance to millions of people in a country that lacks adequate health facilities, benefiting private hospitals such as those run by Fortis.

Fortis said it will call a shareholders’ meeting at the earliest to seek approval for the IHH bid.

IHH will pay Fortis ₹40 billion ($585 million) for a 31% stake. Under Indian regulations, IHH will then bid for another 26% of Fortis, offering up to ₹33 billion.

Debt refinance

Fortis said it settled on IHH’s “simpler” offer, which will allow the Indian firm to refinance up to ₹25 billion of debt, and address its short-term liquidity needs. Manipal had offered ₹21 billion at ₹160 per share.

On a conference call with the media, Fortis Chairman Ravi Rajagopal said he did not expect the company’s current management structure to change after the IHH deal.

Malaysian brokerage PublicInvest Research said the acquisition was a good step for IHH to expand its footprint in India at a good price.

“Greenfield doesn’t really work in India due to the long bureaucratic process for greenfield acquisitions,” the brokerage said.

IHH said in a separate statement it expected the deal to be completed in the fourth quarter and does not expect it to have any material effect on profits for the year ending December 31.

Fortis shares have declined 8% so far this year.

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