Fortis to demerge hospitals business into Manipal

Billionaire Ranjan Pai India’s healthcare trailblazer

With the demerger of Fortis Hospital (Rs 3,727 crore by revenue) into Manipal Hospitals, the resultant entity (Manipal Hospitals) will be a publicly traded company on the Indian stock exchanges. Besides the sale of its hospital business, Fortis Healthcare Limited (FHL) on March 27 also announced the sale of its 20% stake in its diagnostics business (SRL Diagnostics) to Manipal Hospitals.

The deal offers an out to Fortis backers Malvinder Singh and Shivinder Singh, who resigned from its board last month following legal troubles related to the sale of their stake in drugmaker Ranbaxy to Japan's Daiichi Sankyo Co Ltd. "We are happy and confident that the combination will be value accretive for all stakeholders", according to a statement by promoters Malvinder Singh and Shivinder Singh. Without its hospital business, Fortis will become an investment holding company, it said. It was valued at Rs 3,395 crore ($513 million) when a PE firm exited the company two years ago. Overall, Pai and TPG are said to be investing Rs 3,900 crore into Manipal Hospitals in order to complete the buyouts. The funds will be utilized by Manipal Hospitals to finance the acquisition of 50.9% stake in SRL (20.0% from FHL and 30.9% from other investors for which discussions are now underway).

"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.

Will put TPG-backed Manipal Health to pole position among India's largest hospital chains, with a combined annual revenue of Rs5,400 crore.

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 proposed transaction is subject to approvals from shareholders, creditors, the Competition Commission of India, the Securities and Exchange Board of India, stock exchanges and National Company Law Tribunal (NCLT), and other customary conditions precedent.

Under the deal, for every 100 shares of Fortis, a stockholder will receive 10.83 scrips in the combined entity Manipal Health Enterprises (MHEPL).

Fortis Healthcare reported revenue of Rs3,727cr for the 12 month ended December 2017 (TTM Dec-17) while Manipal reported Revenue of Rs1,503cr during the same period.

The Singh brothers, who resigned from the board earlier in February, now own a stake of only 0.77% in Fortis compared with almost 25% at the end of December 2017, stock-exchange filings show. With this, the shareholding of Singh brothers in the merged entity will come down to a mere 0.3% from the existing 0.8% in Fortis.

Cyril Amarchand Mangaldas is advising Fortis Healthcare and the team was lead by Managing Partner Cyril Shroff along with Partners Ruetveij Pandya and Nivedita Rao.

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