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Fortis Healthcare receives new joint bid from Sunil Munjal-Burman family

This comes even as Manipal has increased its offer to acquire Fortis' hospitals business and while Malaysia's IHH has also been planning a counter bid of its own.

Last Updated: Apr 13, 2018, 12.45 AM IST|Original: Apr 12, 2018, 08.26 PM IST
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Hero-Dabur jointly bid for Fortis Healthcare
Hero-Dabur jointly bid for Fortis Healthcare
NEW DELHI/MUMBAI: The battle for Fortis Healthcare intensified with the surprise entry of a third contender into the fray as the family offices of Sunil Munjal of Hero Enterprises and the Burmans of the Dabur group submitted a joint bid on the same day Malaysia’s IHH Healthcare Bhd unveiled its offer, which sought to better a revised one by TPG-backed Manipal Health Enterprises.

Fortis Healthcare received an unsolicited, binding joint offer from the Hero Enterprise Investment Office and the Burman Family Office with a proposal to invest Rs 1,250 crore in the company through the preferential allotment route, Fortis told BSE late on Thursday. That involves a Rs 500-crore binding offer immediately and Rs 750 crore after diligence is completed “within three weeks”, the notification added.

ET was the first to report on April 12 that IHH was making a counter offer.

IHH made a formal “non-binding expression of interest” to acquire Fortis for Rs 160 per share, said multiple sources directly aware of the development. The offer sent to the Fortis board on Wednesday night is subject to due diligence, further negotiations and documentation, and is valid for a week. The communication is said to have suggested that compared with the “complex and uncertain” transaction suggested by Manipal-TPG, IHH’s cash offer is a better option. Manipal Health CEO Ranjan Pai rejected that contention.

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The Malaysian company stepped back into the Fortis takeover battle nine months after pulling out of bilateral negotiations with erstwhile promoters Malvinder and Shivinder Singh.

IHH declined to comment. “We will make appropriate announcement( s) should there be any material developments,” an IHH spokesperson told ET. Fortis did not respond to queries.

The Munjals and Burmans had evaluated the deal previously but opted out.

Group entities of the Hero Enterprise Investment Office and the Burman Family Office hold about 3% of Fortis, which had a market cap of Rs 7,976.95 crore on Thursday. The two approached the Fortis management in the last week of March to discuss the possibility of a transaction, the Munjal-Burman combine said in a press release.

“However, these discussions were unsuccessful. We were informed by the management that the company did not have the time to offer any due diligence opportunity, and the discussions ended with no information being given to us,” it said.

“In these circumstances, as shareholders, we are concerned regarding the company’s (Fortis) future, as it presently finds itself at a very critical juncture in its existence. While we have strong faith in the potential of the company, the various issues faced by the company over the last many months are a cause of grave concern.”

The Fortis board has agreed to consider the Munjal-Burman proposal, even as the Manipal-TPG combine has the first right of refusal, allowing it to revert within five days with a matching or superior offer.

“The said proposal is under evaluation by the company and we will keep the stock exchanges informed accordingly,” Fortis said.

On the block are Fortis’ hospitals and a stake in the SRL Diagnostics unit.

“We request that you place our offer to the shareholders as it has merits for all the stakeholders,” stated the Munjal-Burman release. The two investors said they have “strong pedigree and background” and would give confidence to all stakeholders.

The bidders demanded a seat on the Fortis board to “monitor” aspects like shareholder and regulatory approvals and ensure that the investment is being used to pay employee dues and repay matured loans.

“Our offer is simple and does not envisage any changes to the current structure, operations and assets of the company, and can be implemented in a fairly short period of time and will allow the company to focus on stabilising operations and on growth,” it said. “The proposed infusion of funds not only addresses the immediate liquidity needs of the company, but also addresses the company’s longterm growth requirements.”

OPEN OFFER
If IHH doesn’t hear from the Fortis board within the stipulated time, it’s looking to launch a voluntary open offer to shore up the non-promoter shareholding and stake a claim for the company, said people aware of plans.

Pai told ET that the Manipal-TPG offer had already set the valuation benchmark and it was up to the board and the shareholders of Fortis to consider “what they think is the best offer on the table”.

“What’s the point of a non-binding offer at this stage that is only 3% higher than ours,” he said in response to the IHH bid. “More so, as IHH has already done detailed diligence on this asset. Coming in with a proposal with so many conditionalities attached clearly will delay the process further… I don’t think they will do a deal that is non-dilutive to their stock.” “Our structure is the best of both worlds,” he went on. “It unlocks value and you will end up with a clean diagnostics company that can trade at 4-5 times higher multiple compared to a hospitals company. It also shields 70% of the Fortis hospitals business from any probe.”

However, Pai said he was flexible on revisiting his deal structure that called for a demerger of the hospitals assets once the ongoing investigations into accounts are completed and a clean chit is given. “It’s hypothetical at the moment… till the multiple probes are ongoing, our structure is the best but in future we can consider coming in directly into the company as well.”

The latest developments have turned the acquisition process into a three-cornered tussle over the past few days. Fortis told the BSE on March 27 that its board had approved a proposal to sell its hospitals and SRL Diagnostics stake to TPG-backed Manipal.

The deal, initially valued at Rs 3,900-crore, involved the company hiving off its hospital business and merging it with Manipal Health.

The second leg of the transaction involved the purchase of a significant stake in SRL. Following reports of opposition from disappointed minority shareholders, Manipal-TPG this week submitted a revised bid to sweeten the deal.

The revised offer, which proposed a swap ratio of 13.1 shares in the new merged entity (MHEPL) for every 100 shares of Fortis, is currently being evaluated by the Fortis board, according to a BSE filing dated April 10. The old swap ratio offered 10.83 shares of MHEPL for every 100 Fortis shares, upsetting minority shareholders who felt it undervalued Fortis.

Ace investor Rakesh Jhunjhunwala had earlier questioned the proposed deal with Manipal-TPG in an exclusive interview to ET, adding that the hospital chain should be sold through a “fair” process that allows all interested parties to bid.

Also Read

How the future of Fortis Healthcare rests on the outcome of a high-stakes battle

Exploring legal options to address contempt notice by SC: Fortis Healthcare

Will proceed with open offer once SC stay is lifted: IHH on Fortis Healthcare

Fortis Healthcare posts profit of Rs 111 crore in Q2

Yes Bank reduces stake in Fortis Healthcare by 2%

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