Fortis' chairman Rajagopal believes that "the IHH proposal offers a more strategically and financially compelling proposition along with simplicity and certainty."
The board of directors of Fortis Healthcare on Friday unanimously approved a binding investment proposal from IHH Healthcare to invest Rs 4,000 crore by way of preferential allotment.
The allotment will take place at Rs 170 a share, which is at a 20 percent premium to Fortis' current market price. Shares of Fortis ended Thursday at Rs 142.15 on BSE.
Since IHH's post-acquisition stake in Fortis will exceed 25 percent, it is required to extend an offer to buy an additional 26 percent from existing shareholders at a price not less than the one at which the stake is being bought.
After the transaction and the resultant open offer go through, IHH's stake in Fortis could be anything between 31 percent and 57 percent, depending on the subscription received for the open offer.
Fortis received two binding proposals -- one each from IHH and the Manipal-TPG consortium -- on July 3.
The Manipal-TPG consortium had offered to infuse Rs 2,100 crore by buying shares through a preferential allotment at Rs 160 per share. It also offered to buy out the stake held by private equity investors in Fortis' subsidiary SRL Diagnostics for Rs 1,134 crore.
As for the latest bid by IHH, Fortis said it will call for a shareholders' meeting at the earliest and that it looks forward to getting the deal approved by them.
The transaction is expected to be completed within 7 business days after the shareholders and the Competition Commission of India approve it. CCI's approval will be obtained concurrently with that of the shareholdersand can take approximately 60-75 days.
"After a period of detailed consideration and evaluation, the board of directors is delighted to announce their approval of the IHH binding proposal," said Fortis Chairman Ravi Rajagopal.
"The IHH proposal offers a more strategically and financially compelling proposition along with simplicity and certainty," Rajagopal said. He added that the bidding process that was relaunched on May 29 has been conducted in a fair, time-bound, and transparent manner.
"The release of the Audited FY 2018 financial statements was a key milestone in underpinning the overall success of the transaction. As part of the process, we look forward to continuing the dialogue with our shareholders ahead of the EGM to approve the transaction," the chairman said.
The company's financial advisors Standard Chartered Bank and Arpwood Capital, and legal advisors Luthra & Luthra and Cyril Amarchand Mangaldas, helped the board arrive at its decision.
What weighed in favour of IHH?
The Fortis board said it favoured the Malaysian firm's bid as the latter proposed significant primary fund infusion at the highest available bid price of Rs 170 per share, in addition to committing to provide funds for future requirements.
Fortis said that the IHH offer gives "significant deal certainty given a simpler transaction structure and requirement for fewer approvals and a shorter timeframe." The open offer triggered by it provides an "exit" opportunity for shareholders.
The Malaysian firm has also agreed to refinance Rs 2,500 crore of Fortis' debt."Funds infused to be used towards completion of acquisition of assets of RHT, SRL private equity minority shareholders and short term liquidity needs," Fortis said.