Fortis rejects IHH offer, board to consider ‘all eligible options’

Malaysian healthcare group IHH on Monday said India’s Fortis Healthcare rejected its offer to acquire the hospital chain citing its binding agreement with a consortium of Manipal Health and TPG. The development comes even as Fortis announced that its board would meet this week to look “all eligible options” for a deal.

IHH still has the option of going hostile by approaching Fortis’ shareholders directly with an offer if it is serious about the asset, according to experts.

The Fortis board has “indicated its inability to engage” with the Malaysian firm due to its agreement with Manipal Health Enterprises, Manipal Global Health Services and TPG Asia, IHH told Malaysian stock exchange Bursa Malaysia Securities Berhad.

“At this juncture, IHH has not entered into any discussions, negotiations or transactions,” said IHH, which had sent a strictly non-binding letter to the Fortis board on April 11 expressing interest to “participate in Fortis and its affiliates in a suitable manner”.

As part of its offer, IHH proposed a price of Rs160 for each share of Fortis Healthcare, subject to satisfactory completion of limited due diligence.

IHH said it would make “appropriate announcement(s) … in a timely manner” to the exchange in case of any further material development on this matter. Fortis, meanwhile, told the BSE on Monday that its board had not yet made a decision on the proposals it had received so far and proposed to meet on April 19 “to consider all options”.

On March 27, the Fortis board approved a proposal to demerge its hospital business into Manipal as well as the sale of its 20% stake in SRL, Fortis’ diagnostics business, to the Ranjan Pai promoted hospital group, “subject to shareholders and regulatory approvals,” a Fortis spokesperson said.

Following word of potential opposition from minority shareholders disappointed with the valuation given to Fortis in the deal, Manipal-TPG submitted a revised offer last week that increased the valuation of Fortis shares by around 21%, according to analyst estimates. It values Fortis at Rs 155 per share, ET reported last week.

Share prices of Fortis dropped 1.94% to close at Rs 149 on the Bombay Stock Exchange on Monday, while the bench Paimark Sensex ended 0.33% higher.

Fortis also received a joint offer from Sunil Munjal’s Hero Enterprise Investment Office and the family office of the Burmans of Dabur to infuse around Rs 1,250 crore into Fortis and keep its existing structure intact. Shareholders of Fortis may not be happy about the Fortis board’s response to IHH, said Shriram Subramanian, the managing director of governance advisory firm InGovern.

“If IHH is determined, it can always converse with the shareholders of Fortis, explain that its offer is better, and place its own proposal in front of shareholders. The board then has to, per force under the Indian company law, place it in front of shareholders,” he told ET.

ET reported on April 12 that IHH’s advisers were in touch with institutional shareholders, including Elliot Management and Yes Bank, and would approach everyone directly only if the board rebuffed its proposal.

“It is eventually up to the shareholders to determine the future of Fortis,” Subramanian said. Shareholders may also back the Manipal-TPG proposal if the other two contenders are offering only a marginally better proposal and if there is uncertainty around whether they would continue pursuing a deal.