IHH Healthcare offers Fortis buyout at $796m

It is neck-to-neck with three other bidders for India's second largest hospital group.

IHH Healthcare issued a non-binding letter to Fortis Healthcare expressing its readiness to inject INR40b or $796m (INR 160 per share) in order to fund the buyout of Singapore-listed RHT Health Trust (RHT), it said in an SGX announcement.

IHH Healthcare is fiercely competing with "bidders" trying to lure India's second largest hospital chain. Fortis had entered binding agreements with Manipal Health Enterprises (offered INR 155 per share), Fosun International (offered INR 156 per share). According to Bloomberg, the Munjal and Burman families, which own a total of 3% in Fortis, also raised their offer to INR 161 per share.

IHH said in an announcement, "We believe that we could provide an alternative transaction construct, which in our view, would offer a better option to the company's shareholders at an attractive valuation."

Maybank Kim Eng analyst John Cheong commented, "With IHH’s bid apparently only 3.2% higher, we see a risk of overpaying if it chooses to meaningfully raise, not to mention the short-term operational challenges from legacy issues at Fortis."

Cheong noted that IHH would have to meaningfully raise its offer and convince the Fortis Board its value proposition is superior, assuming it decides to challenge the binding agreements. "We would need to see more compelling benefits to get comfortable with an increase, as our initial calculations show the current bid is only mildly accretive, yet has risks," he added.

If IHH Healthcare wins amongst the bidders, Fortis could significantly enhance IHH’s position in India, its fourth home market, where it operates six hospitals.

The Board of Fortis has acknowledged receipt of the letter and indicated that it is scheduled to meet on 19 April 2018 to consider all options

However, even if Fortis’s 45 healthcare facilities could give IHH instant access to a bigger market and make it the second-largest hospital group in India, Cheong noted several key operational challenges at Fortis: 1) ongoing investigations by regulators; 2) tightened credit lines; 3) complex holding structure; 4) tepid operational performance vs peers; and 5) litigation against former promoters.

According to reports, a group of minority shareholders have called for the removal of four directors from the board.