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Fortis opts for Munjal-Burman offer in hospital takeover
But even with the board’s decision, the battle for Fortis may not be over as shareholders still need to decide whether to accept the deal.
Fortis Healthcare Ltd.’s board passed over bids backed by US private-equity giants TPG and KKR & Co. in favour of the Burman and Munjal families in the contentious battle for control of India’s second-largest hospital chain.
The drawn-out takeover fight moved a step closer to a conclusion after the Fortis board late Thursday chose a joint proposal from two business families. The rejected offers include bids by TPG-backed Manipal Health Enterprises Pvt. and KKR-backed Radiant Life Care Pvt.
Big name private-equity firms and companies from China to Malaysia were attracted to Fortis by the rare opportunity to increase their presence in one of the world’s most underserved health-care markets. The battle kicked off this year when its founders lost control of their shareholding due to debt, and Indian authorities started investigating allegations they had taken millions of dollars out of the company.
But even with the board’s decision, the battle for Fortis may not be over. Shareholders still need to decide on whether to accept the deal. Before they do, there will likely be another tussle on a motion by two shareholders to remove most of the directors.
The winning joint proposal from Sunil Kant Munjal’s Hero Enterprise Investment Office and the Burman Family Office will see Fortis get an ₹8 billion ($119 million) infusion of new equity, priced at Rs167 per share, according to a filing late Thursday.
The Munjal-Burman offer would also purchase a further Rs10 billion rupees worth of warrants, which would give them an option to buy more stock at a price of Rs176 per share, according to the statement.
Bidding war
Fortis’s board previously agreed to a deal with TPG-backed Manipal Health, only to have it unravel and spark the bidding war. Other offers including from Malaysia’s IHH Healthcare Bhd. and China’s Fosun International Ltd. emerged, and some of them fought to sweeten the deal.
While IHH Healthcare, Manipal Health and Radiant Life operate hospital chains, the winning bidders have a smaller presence in the segment, with one of the two tycoons holding the post of president at a 1,500-bed hospital located in northern India.
“Shareholders will be disappointed with the choice as this is just a financial infusion and doesn’t change the character of Fortis Healthcare,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research Services Pvt. “Shareholders will push for change of the board.”
Shares of Fortis fell as much as 4.4% in early trading in Mumbai, compared with a 0.2% gain in the benchmark S&P BSE Sensex.
Ranjan Pai, chairman of Manipal Education and Medical Group, Manipal Health’s controlling shareholder, said on Friday he was disappointed with the decision made by the Fortis board and wished the best to the new bidders.
Investors have been attracted to Fortis, which operates the largest chain of hospitals after leader Apollo Hospitals Enterprise Ltd. India has about half a hospital bed for every thousand people, according to the Organization for Economic Cooperation and Development, even as faster growth than many other large economies increases patients’ ability to pay for better health care.