Fortis Acquisition boils down to TPG verus IHH

New Delhi: The deal for Fortis seems to be making strides with investors from various angles coming and putting forward their investment strategies. Primarily, two contenders, TPG and IHH seem to be in the race to acquire the country's second largest healthcare provider.

Bloomberg reports that a consortium led by TPG is nearing an agreement to gain control of Fortis Healthcare Ltd.The investor group, which also includes Manipal Health Enterprises Pvt, could announce a deal as soon as the next few days, according to the people, who asked not to be identified because the information is private. Under the plan being discussed, the operations of closely-held Manipal -- whose backers include TPG and Temasek Holdings Pte -- would be combined with Fortis's business, the people said.

A recent news in ET reports that the consortium has proposed a two-step transaction, in the first transaction- the hospital portfolio of the Fortis healthcare will be demerged into a separately listed entity from SRL. the hospital entity will be then merged with the Manipal hospital. In the second transaction, the combined firm will move to take over the controlling stake of SRL Diagnostics unit.

As per the news report, the proposal is expected to give the consortium an edge over IHH Healthcare, which is set to launch a voluntary open offer to buy a majority stake in Fortis Healthcare from the open market.

Read also: IHH Healthcare to make open offer to buy Fortis Healthcare Stake: Report

Bloomberg on the other hand reports that Fortis is discussing issuing around 40 billion rupees ($615 million) of new stock to TPG and Manipal through a preferential allotment, one of the people said. That would make the consortium the biggest shareholder in the publicly-traded company, the person said.

The enlarged company will seek to buy out other shareholders of SRL Ltd., the medical diagnostics provider that's currently part-owned by Fortis, according to the people. The TPG-backed investor group is in negotiations to acquire stakes in SRL from private-equity investors who hold about 30 percent of the company, one of the people said. A deal could value SRL at 34 billion rupees to 40 billion rupees, the person said.

The TPG-led group is seeking control of Fortis as the hospital chain's founders battle allegations of financial irregularities. India's fraud watchdog and stock regulator are investigating Fortis after Bloomberg News reported that the Singh brothers took at least 5 billion rupees out of Fortis without board approval.

Read also: Singh brothers took 78 million dollars out of Fortis: Report

The TPG consortium is working to structure the transaction in a way that limits its exposure to any legal liabilities of Fortis, the people said. The deal will be conditional on receiving approval from the Competition Commission of India, according to one of the people.

TPG and Manipal's cash outlay to gain control of Fortis and SRL may total as much as 60 billion rupees, one person said. Fortis could use the money invested by TPG and Manipal to fund its previously announced purchase of the assets of Singapore-listed RHT Health Trust, which owns some of Fortis's clinics, as well as for debt repayment, according to the person.

It could take nearly two years to complete all parts of the multistep transaction being contemplated, the person said.

TPG bought a significant minority stake in Manipal for 9 billion rupees in 2015, the private equity firm said at the time. Manipal has more than 5,000 operational beds while Fortis has about 10,000 potential beds and 314 diagnostic centers, according to the companies' websites.

Yes Bank Ltd. has become the biggest shareholder in Fortis after it and other lenders called in shares that had been put up as collateral by founders Malvinder Singh and Shivinder Singh, Fortis Chief Executive Officer Bhavdeep Singh said March 1. Three to four potential buyers have been interested in the hospital operator for a while, he said.