Fortis board approves demerger of hospital division into Manipal Hospitals

New Delhi: Fortis Healthcare Ltd. (FHL) said its board has approved demerger of its hospitals business, which will be acquired by Manipal Hospitals and TPG Capital, along with the sale of 20 percent stake in diagnostics chain SRL Ltd., in an Rs 3,900-crore deal.

Meanwhile, recent media reports stated that the board of directors of Fortis Healthcare has received an unsolicited non-binding offer from Manipal Health Enterprises for transaction with the company on March 23, 2018. Shares of Fortis Healthcare fell by nearly 4 percent after the company said its board is still evaluating an unsolicited offer from Manipal Health. The healthcare provider was clarifying following media reports that Manipal and Fortis boards may approve merger this week and the healthcare chain, however, said its board is still evaluating the proposal.

In a late night announcement after a marathon meeting during the day, the healthcare chain said its board has given nod for the demerger of its hospital business into Manipal Hospital Enterprises Pvt. Ltd.

"The Board has also approved the sale of its 20 percent stake in SRL Ltd. to Manipal Hospitals. The resultant entity Manipal Hospitals will be a publicly traded company listed on NSE and BSE. The remaining FHL will be an investment holding company with 36.6 percent stake in SRL," the company said in a statement.

The company further said, "As part of the proposed transaction, Dr Ranjan Pai and TPG will invest Rs 3,900 crore into Manipal Hospitals. The funds will be utilized by Manipal Hospitals to finance the acquisition of 50.9 percent stake in SRL (20.0 percent from FHL and 30.9 percent from other investors for which discussions are currently underway)."

Manipal Hospitals, part of Manipal Education and Medical Group (MEMG), is owned by Dr Ranjan Pai and has been backed by TPG, a leading global alternative asset firm and experienced healthcare investor since 2015.

"In addition, the investment will support the proposed acquisition of hospital assets owned by RHT Health Trust (RHT) and the growth of the hospitals and the diagnostics businesses," it added.

As part of the deal, when the demerger becomes effective, for every 100 shares of FHL held by a shareholder, the shareholder will receive 10.83 shares in Manipal Hospitals -- the resultant combined hospitals business.

Commenting on the development, Fortis promoters Malvinder Singh and Shivinder Singh said in a joint statement, the transaction "will unlock significant value for all stakeholders and will further accelerate and expand access to high-quality healthcare services in India".

"Keeping the interest of the company and stakeholders foremost, we continue to support the Management and the Board to successfully transition to the new joint entity. We want to thank everyone involved in the deal for reposing faith despite challenging circumstances," they said.

FHL CEO Bhavdeep Singh said, "Much has transpired over the past 12 -18 months at Fortis and in the healthcare industry at large; it's now time to get back to working with our doctors and nurses to saving and enriching lives. We believe Manipal has built a terrific franchise and team and the coming together of our two organizations will be transformational for the healthcare industry.

MEMG chairman Pai said the companies make a compelling strategic fit in terms of complementary geographies, clinical strengths as well as a shared commitment to providing outstanding patient care.

"As the largest hospital operator in India, this will be a platform benefiting all, from the communities we serve, to our capable employees and our investors," he added.

FHL said the combination of Manipal Hospitals and Fortis Hospitals will "result in the creation of the largest provider of healthcare services in India by revenue with 41 hospitals in India and 4 hospitals overseas and over 11,000 installed bed capacity, including teaching hospital beds of Manipal Hospitals.

It will have over 4,200 doctors, more than 9,300 nurses and 11,400-plus other employees across India, the statement added.

The proposed transaction is subject to shareholders' approval, creditors' approval, applicable regulatory approvals (including Competition Commission of India, SEBI, stock exchanges and National Company Law Tribunal (NCLT) and other customary conditions precedent, it added.

Earlier, Malaysia's IHH Healthcare Berhad was also in the race to acquire Fortis but talks did not fructify.

The sale of Fortis to Manipal-TPG combined comes at a time when the promoters, Singh brothers are facing intense pressure over alleged financial irregularities at Fortis and Religare, which the Serious Fraud Investigation Office (SFIO) has been reported to be initiating.

Both Malvinder Singh and Shivinder Singh had quit from the boards of Fortis and Religare last month.

The Delhi High Court had on January 31 upheld an international arbitral award of Rs 3,500 crore passed in favour of Japanese pharma major Daiichi Sankyo, which had alleged that the former promoters of erstwhile Ranbaxy Laboratories had concealed information about proceedings against them by the US Food and Drug Administration.

Moreover, on February 15, the Supreme Court lifted its stay on sale of shares of Fortis Healthcare Ltd. pledged with banks by the Singh brothers before August 31, allowing financial institutions, including Axis Bank and Yes Bank, to sell the pledged shares.

Subsequently, the stake of promoter firm Fortis Healthcare Holdings along with promoters Malvinder Mohan Singh and Shivinder Mohan Singh and other family entities have come down to 5.87 percent from 34.43 percent earlier.

Credit rating agencies ICRA and CARE have also downgraded ratings on Fortis Healthcare.