KUALA LUMPUR: IHH Healthcare could take its offer for Fortis Healthcare directly to the Indian company’s shareholders despite being shut out by the latter’s board of directors.
CIMB Equities Research said on Tuesday IHH’s initial pure cash offer of Rs160/share (subject to necessary due diligence), could have been the preferred option for minority shareholders, in its view.
“Regardless of Fortis outcome, IHH remains committed to expanding its 4th largest healthcare market exposure. No change to our Add call and RM6.86 TP,” it said on Tuesday.
IHH had on Monday confirmed that it had on April 11, 2018 issued a non-binding expression of interest to participate in Fortis.
In the latest twist of events, the Fortis board of directors indicated its inability to engage with IHH, citing binding agreements with Manipal Health Enterprises, Manipal Global Health Services and TPG Asia (private equity firm), collectively known as Manipal-TPG.
“We think IHH might next take its offer directly to Fortis’s shareholders. While Fortis founders’ stake has declined to less than 1% from 34.4% previously, Yes Bank emerged as the single largest shareholder with 17% stake, according to news reports.
“Recall also that Fortis has earlier offered to buy the entire portfolio of hospital assets from RHT Health Trust (Hold) for Rs46bn, conditional upon consent from RHT’s bondholders.
“We believe IHH’s offer will not only provide the necessary financing for this asset purchase, but also present a more clear exit option for Fortis’s minority shareholders,” it said.
Fortis is the second largest private hospital chain in India (after Apollo), with over 41 healthcare facilities and approximately 4,800 operational beds, based on its FY17 annual report.
“We think Fortis appeals to IHH due to its i) extensive presence, especially in northern India, ii) sizeable hospitals with expertise in niche/complex care, and iii) alignment with IHH’s brownfield strategy.
“IHH entered the India market in 2015, when it bought 51% of Continental Hospitals for Rs3bn, and 74% of Global Hospitals for Rs12.8bn.
“Given that India is its 4th largest healthcare market, we believe IHH is keen to expand its footprint there, backed by its recent issuance of US$500m perpetual securities.
“If IHH is successful in acquiring a controlling stake in Fortis, we expect integration efforts to weigh on its near-term profitability, but could unlock greater economies of scale in the medium term.
“IHH’s global track record and established management team in India would be able to help in turning Fortis around, in our view,” said CIMB Research.