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Fortis shareholders oppose hospital biz sale to Manipal-TPG on valuation concerns

A group of investors, led by Eastbridge Capital, have approached several Fortis shareholders, including Elliott Management, to oppose the Fortis-Manipal deal citing valuation concerns.

business Updated: Apr 02, 2018 12:35 IST
Deborshi Chaki
Deborshi Chaki
Livemint, Mumbai
Fortis,Fortis Healthcare,Manipal Hospitals
On 28 March, the board of Fortis announced the sale of its hospital assets to the Manipal-TPG combine.(Parveen Kumar/Hindustan Times)

Some shareholders of Fortis Healthcare Ltd have come together to oppose the sale of Fortis hospitals to the Manipal Health Enterprises-TPG Capital combine, two people directly aware of the development said on condition of anonymity.

The investors, led by India-focused hedge fund Eastbridge Capital, have approached several other shareholders of Fortis, including activist hedge fund Elliott Management Corp. and a mutual fund with a large shareholding, to oppose the deal.

The stance of Yes Bank Ltd, which owns close to 15% stake in Fortis, was not immediately known. Emails sent to Fortis, Eastbridge Capital, Elliott Management and Yes Bank remained unanswered at the time of filing this story.

“This section of investors, which so far collectively account for close to 30% of Fortis shareholding, plan to write to Fortis’s board seeking an extraordinary general body meeting to replace the current board and induct new members and also call for a transparent auction process of Fortis to the highest available bidder,” said one of the two people cited above, requesting anonymity.

“The shareholders are opposed to the way the deal with TPG was structured and want a better valuation,” said the second person, also requesting anonymity. “The shareholders also want the board to find an alternative to raising funds to buy back the stake in Fortis from Singapore-based Religare Health Trust for Rs4,650 crore; which is expected to help the company save up to Rs270 crore on service fees and Rs75 crore on interest costs.”

On Wednesday, the last trading day, Fortis Healthcare share price plunged 13.37%, or Rs19.05, to Rs123.40 on news of the Fortis-Manipal deal.

In an interview on 28 March, Puneet Bhatia, co-managing partner and country head, TPG Capital, said that he expects the Fortis-Manipal deal to cross multiple hurdles. Bhatia did not elaborate on the nature of challenges the deal is likely to face.

Emails sent to TPG Capital and Manipal group remained unanswered till the time of filing this story.

On 28 March, the board of Fortis announced the sale of its hospital assets to the Manipal-TPG combine. Apart from hospital assets, Fortis’s board also approved the sale of 20% stake in SRL Diagnostics. As part of the proposed transaction, Manipal promoter Ranjan Pai and TPG Capital will invest Rs3,900 crore in Manipal Health Enterprises Pvt. Ltd. The funds will be utilised by Manipal Health to finance the acquisition of hospital assets of Fortis Healthcare and 50.9% stake in SRL—20% from Fortis Healthcare and 30.9% from investors Avigo Capital, Jacob Ballas and International Finance Corp.

The investment will support the proposed acquisition of hospital assets owned by RHT Health Trust and the growth of the hospitals and the diagnostics businesses, Fortis said in its statement. The proposal will be put to vote before shareholders in a special meeting scheduled to be held within 30 days of the deal announcement.

The proposed sale of majority control in Fortis has faced several legal headwinds ever since its erstwhile promoters brothers Malvinder and Shivinder Singh decided to exit the hospital chain and began discussions with potential buyers. On 31 August, the apex court refused to permit the Singh brothers, former Ranbaxy Laboratories Ltd promoters, from selling their stake in Fortis Healthcare. It also refused permission to banks with whom the Singh brothers had pledged Fortis shares to do the same. They were further restrained from disposing of any of their assets (encumbered and unencumbered) till the final disposal of the case.

Mint had reported on 15 March that the control of Fortis, which has been without defined promoters, is likely to escalate into a bidding war between its suitors including hospital chain IHH Healthcare Bhd. Mint had reported that TPG Capital-Manipal Health combine and IHH Healthcare could acquire shares from the public and banks to wrest control of Fortis. Currently, 80% of Fortis’s shares are with the institutions and public while 20% of pledged promoters shares are held by lenders Yes Bank Ltd and Axis Bank Ltd.

First Published: Apr 02, 2018 12:23 IST