BANGALORE/MUMBAI - Manipal Hospitals Enterprises Private Ltd plans to buy troubled Fortis Healthcare Ltd's hospital business, but the deal is expected to run into opposition from Fortis minority shareholders whose shares plunged 14 percent on the news.
If successful, the acquisition would create one of India's biggest healthcare providers and help resolve an uncertain outlook for Fortis, which has been under a cloud as authorities investigate whether its founders siphoned funds out of the company.
Fortis Chief Executive Bhavdeep Singh said the deal would be worth 150 billion Indian rupees ($2.3 billion), according to the estimated value of both firms and the cash involved. He did not give a breakdown of the cash and equity portions of the deal.
But shares in Fortis slid on Wednesday, giving the company a market value of just 62.83 billion Indian rupees ($965 million) as investors expressed their unhappiness with the terms of the transaction.
"That's going to be a significant issue and we are making sure that we do it right," Singh said on a media call. "We are making sure that we are sharing (with minority shareholders) exactly what we are thinking."
Fortis said its shareholders would get 10.83 shares in Manipal Hospitals for every 100 Fortis shares held.
The combined company, Manipal Hospitals, is set to be listed on India's bourses. About 38 percent would be owned by Manipal Chief Executive Ranjan Pai, while U.S. buyout firm TPG would hold 20.7 percent.
Deepak Malik, an analyst at Edelweiss Securities, said chances of the deal succeeding in its present form were low.
"We believe minority shareholders of Fortis Healthcare are not set to benefit from this current deal as the deal is tilted in favour of TPG plus Manipal hospital," he said.
A combined company would create a formidable rival to Apollo Hospitals Enterprise Ltd.
Fortis's portfolio of 34 hospitals across India and neighbouring countries would add to the 14 hospitals Manipal operates mostly in southern India and Malaysia. Apollo has 71 hospitals, a company spokeswoman said.
Private healthcare companies such as Manipal and Apollo have grown rapidly in recent years, tapping into increasing demand for better healthcare amid a broken and under-resourced public health system. Deloitte expects India's healthcare market will grow three fold to $372 billion by 2022.
Singh said he expected probes by the Serious Fraud Investigations Office and the Securities and Exchange Board of India to be over before the deal is completed in 9-12 months.
They are looking into allegations that founders Malvinder Singh and Shivinder Singh, who are no relation to the CEO, took funds from Fortis. The brothers have denied the allegations.
The brothers, who now own less than 1 percent of Fortis, 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. The Ranbaxy case is unrelated to Fortis.
A separate part of the deal includes Manipal buying a majority stake in the diagnostics chain SRL Ltd, purchasing 20 percent from Fortis for roughly 7 billion rupees ($108 million). It is in talks to buy 30.9 percent from private-equity investors.
Fortis will hold 36.6 percent of SRL. Without its hospitals business, Fortis said it would become an investment holding company.