After IHH and Hero-Burman, Manipal-TPG too sweetens offer for Fortis

Manipal Health Enterprises, backed by US private equity firm TPG, has revised its offer for Fortis Healthcare Ltd, now proposing a merger of both entities in a three-step deal that values the Fortis at Rs8,358 crore or around Rs160 per share.

The new offer envisages an infusion of funds through a preferential allotment of shares, acquisition of stake in the diagnostics unit SRL from private equity investors and a merger of Manipal Health Enterprises Private Ltd (MHEPL) into Fortis Healthcare Ltd.

Once the merger becomes effective, the shareholders of Manipal Health Enterprises will be issued equity shares in Fortis in accordance with the swap ratio for the merger.

The expert advisory committee, led by former PwC chairman Deepak Kapoor, will meet on Tuesday to evaluate the offers and place their recommendation before the board on Thursday.

Manipal-TPG has also proposed to subscribe to equity shares of Fortis for an amount of Rs21 billion (at Rs160 per share preferential allotment). The proceeds would be used to meet working capital requirements, repay existing loans and partly fund the acquisition of assets from RHT Health Trust. The preferential allotment would be subject to receive regulatory approvals, including from the Competition Commission of India (CCI).

Further, Manipal has proposed to buy the stakes held by private equity firms in SRL, the diagnostic arm of Fortis Healthcare, at Rs3,600 crore. After the transaction, the SRL board will be restructured and Manipal-TPG wants to appoint a majority of directors on the reconstituted board.

After the merger, Fortis will undertake a rights issue to raise additional capital. The purchase of the Singapore-based RHT's assets will be funded through debt, apart from the proceeds from the preferential allotment.

“This is a simpler structure that provides liquidity for the company and also cuts down the timeline (of the merger process) to six-nine months from what would have taken around 12-18 months,” Ranjan Pai, chairman and chief executive of the Manipal Group, told sections of the media. “We are funding Rs3,300 crore, which includes Rs2,100 crore into Fortis Healthcare and Rs1,200 crore into buying out the SRL PE stake.”

Manipal-TPG, however, has said their new offer does not require any further due diligence. The proposal is binding and valid until 15 May. This is the fourth offer from Manipal-TPG for Fortis.

Pai said this was a “compelling offer” from their side that took care of all the medium — to long-term needs of Fortis and created value for the shareholders. “We are bringing in value addition of about Rs90 billion and that too without altering any structure of the Fortis,” he said, adding that the latest offer from Manipal-TPG not only takes care of the immediate liquidity issue of Fortis but also takes care of the PEs in SRL (which is a liability for SRL), buy back the RHT assets (organise debt for the transaction if required), gives an opportunity to shareholders to participate through a rights issue.

“On top of it, it gives Fortis a promoter. It needs one at the moment, unlike many other bidders, who are looking at simple fund infusion,” Pai said.

Bidding for Fortis closed on 1 May. Manipal Hospitals, however, had a chance to revise its offer until 6 May, based on the bids received till 1 May. This is as per ‘obligations’ towards Manipal-TPG consortium, Fortis had said.

Last week, IHH had submitted a revised offer valuing Fortis at Rs175 per share, up from its earlier offer of Rs160 per share. Sunil Kant Munjal of Hero Enterprise, along with Anand and Mohit Burman, submitted a revised binding proposal to invest Rs18 billion directly into Fortis without due diligence.

The Hero Enterprises-Burman Family office duo have also revised the validity of its offer till 15 May and have now sought three board seats instead of the two.

The Munjal-Burman team has also objected to the bidding process and has asked for an equal opportunity to all bidders without any unfair advantage to one party.