Fortis Healthcare fell 2.21% to Rs 183.65 at 13:00 IST on BSE after the company's board of directors announced demerger of its diagnostics business into Fortis Malar Hospitals through a composite scheme of arrangement.
The separate announcements were made by Fortis Healthcare and its subsidiary, Fortis Malar Hospitals after market hours on Friday, 19 August 2016.Shares of Fortis Malar Hospitals were locked at 20% upper circuit at Rs 68.50, so far during the day.
Meanwhile, the BSE Sensex was down 143.23 points, or 0.51%, to 27,933.77.
High volumes were witnessed on the counter of Fortis Healthcare. On BSE, so far 5.06 lakh shares were traded in the counter, compared with an average volume of 1.78 lakh shares in the past one quarter. The stock hit a high of Rs 194.40 and a low of Rs 183.20 so far during the day. The stock hit a 52-week high of Rs 199 on 16 August 2016. The stock hit a 52-week low of Rs 141.10 on 12 February 2016. The stock had outperformed the market over the past one month till 19 August 2016, rising 8.43% compared with 1.04% gains in the Sensex. The scrip had also outperformed the market in past one quarter, gaining 11.55% as against the Sensex's 10.54% rise.
The mid-cap company has an equity capital of Rs 463.29 crore. Face value per share is Rs 10.
The board of directors of Fortis Healthcare at a meeting held on Friday, 19 August 2016 approved a proposal to demerge its diagnostics business, including that housed in its majority owned subsidiary SRL Limited (SRL) into another majority owned listed subsidiary, Fortis Malar Hospitals (Fortis Malar) pursuant to a composite scheme of arrangement and amalgamation. The total turnover of the demerged entity for FY 2016 was Rs 555 crore. The demerger shall be followed by SRL being merged with Fortis Malar as an integral part of the same composite scheme.
The composite scheme will also provide for the sale of its hospital business by Fortis Malar to Fortis Healthcare by way of a slump sale for a lump sum cash consideration, and the same shall precede the merger. Upon the composite scheme becoming effective, and subject to receipt of requisite regulatory and statutory approvals, the diagnostics business of Fortis Healthcare, including that housed in SRL would be vested in Fortis Malar. The name of Fortis Malar will subsequently be changed to SRL Limited and this company is proposed to be listed on the National Stock Exchange of India Limited (the NSE), in addition to its current listing on the BSE.
Upon the effectiveness of the composite scheme and as consideration towards the demerger of the diagnostics business undertaking of Fortis Healthcare, Fortis Malar would issue and allot to the equity shareholders of Fortis Healthcare, as on record date, 0.98 fully paid up equity shares of Rs 10 each of Fortis Malar for every 1 equity share of Rs 10 each held by them in Fortis Healthcare. The equity shareholders of SRL, except for Fortis Malar, who will acquire shares of SRL pursuant to the demerger will, as a consideration towards the merger of SRL into Fortis Malar, be issued and allotted 10.8 equity shares of Rs 10 each of Fortis Malar for every 1 equity share of Rs 10 each held by them in SRL as on record date. Further, Fortis Healthcare shall pay an amount of Rs 43 crore as lump sum consideration to Fortis Malar towards acquisition of the hospital business of Fortis Malar.
Appointed date for the slump sale, demerger and merger under the composite scheme is 1 January, 2017. The composite scheme of arrangement and amalgamation will be subject to the various statutory and regulatory approvals including those from the stock exchanges, and shareholders, and creditors of the respective entities, and the sanction of the jurisdictional High Court.
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Fortis Healthcare's rationale for the proposed transaction is that hospitals and the diagnostics businesses have distinct operating models and given the macro-fundamentals of the healthcare industry, each of these provide a strong growth opportunity in the foreseeable future. As both businesses approach their next phase of growth, it would be strategically apt to have them restructured under separate entities to enable them to move forward independently, with greater focus and specialization; leveraging further on their respective capabilities and their strong brand presence. Additionally, the proposed restructuring, would lead to a simplified organization structure assisting shareholders and investors to better understand and evaluate both businesses independently as investment options and potentially lead to a higher value illumination of each of these businesses
On a consolidated basis, Fortis Healthcare's net profit fell 74.1% to Rs 25.26 crore on 7.6% rise in net sales to Rs 1103.22 crore in Q1 June 2016 over Q1 June 2015.
Fortis Malar's net profit fell 62.7% to Rs 0.60 crore on 9.8% rise in net sales to Rs 33.01 crore in Q1 June 2016 over Q1 June 2015.
Fortis Healthcare is the leading healthcare delivery chains in the country currently encompassing both the hospitals and the diagnostics businesses. The promoters of Fortis Healthcare currently own a fully diluted stake of 63.1% in the company with the rest being held by public shareholders. Post transaction, the promoters' stake in Fortis Healthcare will remain unchanged.
SRL, a subsidiary of Fortis Healthcare is primarily involved in providing diagnostics services and is amongst the leading diagnostics chains in India with a significant market share in the organized diagnostics segment. It comprises infrastructure of more than 329 laboratories, 7,300 collection points and an offering of close to 3,800 tests; cumulatively performing more than 33 million tests annually. Fortis Healthcare owns a fully diluted stake of 56.4% in SRL and promoters hold 5.3% stake.
Fortis Malar is a listed entity comprising of a multi-specialty facility in Chennai. Fortis Healthcare currently owns an indirect fully diluted equity stake of 62.4% in Fortis Malar with the rest being held by public shareholders. Post transaction, promoters will hold 40.6% stake in Fortis Malar to be renamed SRL and Fortis Healthcare will hold 1.3% stake. Erstwhile, public shareholders of SRL and Malar taken together will hold 37.3% in the new entity.
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