Manipal sweetens offer for Fortis hospitals, proposes Rs 40-bn rights issue

Private equity firm TPG backed-Manipal Hospitals has revised the terms of offer for acquiring the hospital business of Fortis Healthcare, after protests from minority investors threatened to derail the original transaction.

The revised offer, which includes a proposal for a Rs 40-billion rights issue and an upward revision in the valuation of Fortis Healthcare, was submitted on Tuesday evening. Fortis Healthcare notified the stock exchange that it had received an unsolicited binding offer, which was under consideration. The revised offer is valid for a week.

The merger of Manipal Hospitals with the hospital business of Fortis Healthcare came under a cloud after investors such as East Bridge Capital, Elliot Management, and others, holding around a 30 per cent stake in the hospital chain, objected to the valuation, which they felt was tilted in favour of Manipal Hospitals. Ace investor Rakesh Jhunjhunwala, too, had voiced his concern about the transaction.

Faced with opposition from shareholders, Manipal Health Enterprises (the company which runs Manipal Hospitals) sent a revised offer on Tuesday. 

The transaction involves the merger of the hospital business of Fortis with Manipal Hospitals. Under the original offer, for every 100 shares of Fortis Healthcare, its shareholder would receive 10.83 shares in Manipal Hospitals (the combined hospital business). This proposal was based at an equity valuation of Rs 50.03 billion for the hospital business of Fortis Healthcare and Rs 60.70 billion for Manipal Hospitals.

Manipal Hospitals on Tuesday said it proposed to offer an upward revision of Rs 10.58 billion to Fortis Healthcare shareholders, over and above the existing Rs 50.03 billion valuation.

“We continue to believe in the compelling prospects from the combination of the hospital business of Manipal and Fortis,” said Ranjan Pai, chairman, Manipal Education and Medical Group. “We hope our revised offer addresses the concerns raised by certain Fortis shareholders.” 

While earlier there was no proposal for a rights issue, MHEPL said it would look to bring a rights issue of Rs 40 billion for all shareholders after completion of the merger.

Also, the earlier plan to infuse Rs 39 billion into the merged hospital entity has been shelved by TPG and Pai.

MHEPL has also offered not to acquire nearly 51 per cent of SRL Diagnostics, Fortis Healthcare’s diagnostic business. Under the earlier transaction, MHEPL was to acquire the 20 per cent shares held by Fortis and remainder from private equity investors. Under the proposed offer Ranjan Pai plans to acquire 30 per cent held by private equity investors. It is also proposed to merge Fortis Healthcare and SRL Diagnostics.