Fortis offers to pay $2.3 bn for Parkway control

Says low costs and synergies could make the combined entity the largest healthcare player in the world.

Fortis Healthcare Ltd today launched a counter bid for Singapore-based Parkway Holdings, offering to buy the remainder shares of Asia’s largest hospital chain for $2.3 billion (about Rs 11,000 crore). Fortis, promoted by the Singh brothers — Malvinder and Shivinder — said it would pay S$3.8 (Rs 126.6) a share to acquire 74.7 per cent stake in the hospital operator. Fortis is the largest shareholder in Parkway, with a 25.3 per cent holding.

The offer tops a partial bid made by Malaysia’s sovereign wealth fund, Khazanah Nasional Berhad, to acquire 51.5 per cent stake in Parkway for S$3.78 a share. Khazanah owns 23.32 per cent in the hospital chain through its healthcare investment arm, Integrated Healthcare Holdings.

Fortis has made the bid through RHC Healthcare Pte Ltd, a company jointly owned by Fortis Healthcare and the Singh brothers. The promoter investment is expected to take the acquisition load partially off the Fortis balance sheet.

“It will take two to three weeks to submit the final offer (to the Singapore Stock Exchange and Parkway shareholders). The offer will be successful if Fortis is able to acquire 50 per cent stake in the company,” Managing Director of Fortis, Shivinder Mohan Singh, said, adding that the intention is to see Fortis maintain its debt-equity guidance of 1:1 even after the successful outcome of the offer.

Parkway and Fortis Chairman Malvinder Mohan Singh said the intention was to make Parkway the mother entity for its healthcare business.

“The logic is to put Parkway and Fortis together. Parkway is a very strong brand in Asia and we will look at rolling out our pan-Asia healthcare plans under the Parkway brand. This may even see Fortis folding up as a subsidiary of Parkway,” he said in a tele-conference.

A Parkway-Fortis combined entity will make it one of the largest healthcare players in the world with 68 hospitals, 12,000 beds, 20,000 employees and 3,500 doctors. The entity will have a turnover of $1 billion and a market capitalisation $4.75-5 billion, Malvinder said.

Industry analysts, however, said the 0.5 per cent premium offered by Fortis over the Khazanah bid was marginal and that they expected a counter-offer from Khazanah.

“It is a good offer, as it allows all shareholders to tender their shares as against just one-third of the shareholders in the Khazanah offer. What needs to be seen now is whether Khazanah would come out with a counter offer or not. The price and premium it (the counter bid) offers will decide the future of the Fortis offer,” said Ranjit Kapadia, vice-president (institutional research) at HDFC Securities.

The battle for control over Parkway began on May 27 after Khazanah announced a conditional offer to acquire 51.5 shares of the company. Following the offer, Fortis, which is India’s largest healthcare company by market capitalization,  passed an enabling resolution to raise  Rs 8,500 crore — Rs 2,750 crore from the stock market and Rs 6,000 crore in debt — a move that was seen by industry analysts as the first step towards a counter-bid.

Fortis shares gained 1.22 per cent to close at Rs 154 on the Bombay Stock Exchange today, a day when the exchange’s benchmark index, the Sensex, lost 191 points. Trading in Parkway shares was suspended on the Singapore Stock Exchange in view of the announcement today. Parkway Holdings, with a network of 16 hospitals with more than 3,400 beds, runs hospitals in Singapore, Malaysia, Brunei, India and China. In addition to Fortis and Khazanah, prominent share holders of Parkway include investment firms Bank of New York Mellon Corporation, Newton Investment Management Ltd and Franklin Resources Inc.