Putting an end to a long-drawn takeover battle, Malaysia’s IHH Healthcare Bhd has emerged as the preferred bidder to take over 31.1 per cent controlling stake in India’s Fortis Healthcare Ltd for $582 million or Rs 170 per share, it said in an announcement today.
The acquisition will give Fortis a valuation of about $1.29 billion. Post acquisition, IHH will hold at least 31.1 per cent and a maximum of 57.1 per cent equity interest in Fortis, triggering a mandatory tender offer to acquire 26 per cent equity interest in Fortis’ listed subsidiary, Fortis Malar Hospital Ltd, under the Indian takeover code.
According to IHH, the offer price of INR 170 per share represents a 22.3x multiple of Fortis Healthcare’s EBITDA for the last 12 months ended March 31, 2018 and 19.5 per cent premium to the closing share price on July 12, 2018 and 60-day volume weighted average price (VWAP), respectively.
The Malar open offer is at INR 58 per share, representing an implied equity valuation for 100 per cent of Fortis Malar of RM64 million ($15.84 million). The Malar open offer price represents a 13.0 per cent and 0.8 per cent premium to the closing share price on July 12, 2018 and sixty-day VWAP, respectively.
Depending on the acceptance levels for the Fortis and Malar open offers, the total funding required for the transaction will be between Rs 40 billion ($581.2 million) and Rs 74 billion ($1.07 billion), which will be funded through existing cash reserves and debt facilities.
For IHH, the transaction is a transformational opportunity as it expands to Northern India as IHH’s fourth home market, said managing director and CEO Tan See Leng in a media briefing.
“The acquisition enables us to realise Fortis’ fullest potential and generate value for all stakeholders as well as meeting its short-term liquidity needs. We have operated in India since 2012. With the acquisition, we will increase our presence in Northern India with 30 hospitals, which have the largest market by population.”
“The brownfield acquisition also allows us to leverage the expertise we have in the nursing and clinical experise across India,” he said.
IHH forecast that its Indian healthcare business revenue will jump from the current 6 per cent to about 24 per cent post acquisition. Commenting on the offer price, Tan said IHH’s offer is “reasonable and prudent”.
“We have taken into account all available information of Fortis as well as the findings from our due diligence to arrive at this offer price. Honestly, I don’t know how many bidders are still in the race and how much is offered by Manipal-TPG. We’re now taking control of the company so I don’t think it’s a very high premium to pay. Moving forward, we are confident and optimistic of the business by engaging management, the board, and other large stakeholders – we’re in a good position to move this asset forward,” he said.
IHH is also supportive of Fortis’ plan to acquire Singapore-listed RHT Health Trust which has a portfolio of 12 clinical establishments, four greenfield clinical establishments and two operating hospitals. It has developed a 100-day turnaround plan to stabilise the ailing Fortis, which is facing a cash crunch and rising debt.
Among the strategies for the 100-day turnaround plan including providing liquidity via the preferential allotment of $582 million, acquiring more doctors to ramp up earnings as well as renegotiating Fortis’ several credit lines.
Tan added that the 16-month bidding war has had many ups and downs, as IHH was not selected in the previous offers.
“We also took a long time to evaluate the deal and I think that are many twists and turns along the way. We have a lot more knowledge of what the assets represent today, and touched base with many shareholders of Fortis and managed to persuade them to see the light of working with us. Not a difficult turnaround strategy for the next few quarters,” he added.
The deal is expected to complete in the fourth quarter of 2018 and will most probably not have any effect for IHH’s fiscal year. Chief financial officer Low Soon Teck said any revenue impact may only be reflected by first quarter of 2019.
With operations across both hospitals and diagnostics businesses, Fortis is India’s second largest healthcare service provider by number of hospitals – 34 across India and internationally with 4,600 bed capacity and employs more than 2,600 doctors and 13,200 support staff, having catered to about 2.6 million patients as or March 2018.