Fortis Healthcare board approves scheme for diagnostics business demerger

Fortis Healthcare Ltd’s board of directors yesterday approved demerger of its diagnostics business, which will include its majority owned subsidiaries SRL Ltd and Fortis Malar Hospitals Ltd, into a separate listed company through a composite scheme of arrangement and amalgamation. 

As an integral part of the composite scheme, the demerger will be followed by SRL being merged with Fortis Malar. Preceding the merger, Fortis Malar, which operates a hospital facility in Chennai, will sell its hospital business to Fortis Healthcare for a lump sum cash consideration of Rs 43 crores. 

Upon the composite scheme becoming effective, 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 Ltd - which is proposed to be listed on the National Stock Exchange, in addition to its current listing on the BSE.

Appointed date for the slump sale, demerger and merger under the composite scheme is January 1, 2017, said the company press release.

Presently, the healthcare delivery services business, ie hospitals, and the diagnostics businesses are housed in Fortis Healthcare & Fortis Malar (which primarily comprise of the operating and managing of the hospitals, providing diagnosis and treatment related to multiple chronic & non-chronic specialities and diagnostics business) and SRL (which is engaged in diagnostics business).

The 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 opportunities in the foreseeable future. Both businesses have a pan-India presence and have since their inception attained a significant size and scale in their respective segments.

"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 specialisation, leveraging further on their respective capabilities and their strong brand presence. Additionally, the proposed restructuring, would lead to a simplified organisation structure assisting shareholders and investors to better understand and evaluate both the businesses independently as investment options and potentially lead to a higher value illumination of each of these businesses,” said Fortis Healthcare in a press statement while explaining the rationale behind the demerger of diagnostics business.

Post restructuring, promoters will own 63.1 percent and 40.6 percent in the Fortis Healthcare and demerged entity Fortis Malar (to be renamed SRL), respectively.