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Fortis-Manipal deal may run aground as East Bridge raises stake in Fortis

The announcement comes at a time when there are reports that East Bridge is trying to gather other minority investors to challenge the deal.

April 03, 2018 / 10:23 PM IST
Fortis Healthcare | Aberdeen Standard Investments (Asia) Ltd increased stake in company to 5.02 percent from 4.96 percent earlier via open market purchases.

Fortis Healthcare | Aberdeen Standard Investments (Asia) Ltd increased stake in company to 5.02 percent from 4.96 percent earlier via open market purchases.

East Bridge Capital bought an additional 3.86 percent stake in Fortis Healthcare through an open market transaction, making the Fortis saga even more interesting than it already is.

Based on the weighted average price of the stock on March 28, at Rs 128.15 apiece, the value of the transaction is estimated at Rs 256.30 crore.

The PE firm already held 5.87 percent stake in Fortis, and with the latest purchase, its shareholding in the healthcare provider rose to 9.73 percent. This gave the firm additional voting rights as well.

East Bridge Capital's announcement comes at a time when there are reports that the PE firm is trying to gather other minority investors to challenge the Fortis-Manipal Hospitals deal, as it feels the Fortis' valuation is too low.

Last week, Fortis Healthcare's board had approved the demerger of its hospitals business, which will be acquired by Manipal Hospitals and TPG Capital, along with the sale of 20 percent stake in its diagnostics chain SRL, in a Rs 3,900 crore deal.

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Manipal Hospitals, a part of Manipal Education and Medical Group (MEMG), is owned by Ranjan Pai and has been backed by TPG for the deal. Both Pai and Fortis CEO Bhavdeep Singh said they were talking to investors and trying to convince them about the deal.

Yes Bank, which is Fortis' largest shareholder with 15 percent stake, declined to comment on the company's valuation or whether it will be joining hands with East Bridge Capital.

Blackrock, Morgan Stanley, and ICICI Prudential are the other large institutional investors who have a stake in the company.

Market investors Radhakishan Damani and Rakesh Jhunjhunwala together hold around 1.5 percent stake in Fortis. Damani had picked up a 0.5 percent stake in the company in February.

Several brokerage houses, while welcoming the deal, expressed disappointment over the valuation at which Fortis had to settle.

"The combined entity can realize significant operational synergies and leverage its balance sheet strength to further strengthen the network across India," IDFC Securities said.

"However, from a FHL minority shareholder perspective, the prima facie deal valuations are disappointing and there is limited operational / financial information available on the Manipal group," IDFC said.

"The valuation look quite dilutive for the FHL shareholders in our view considering just 33 percent stake of FHL shareholders in merged entity and ~67% EBITDA contribution to combined hospital business," said ICICI Securities in its report.

Elara Securities too said the deal value gives minimum upside for Fortis Healthcare's minority shareholders from a medium-term perspective.

Shares of Fortis rose 2.24 percent to close at Rs 129.95 on BSE, while the benchmark Sensex gained 0.35 percent to end at 33,370.63 points.
Viswanath Pilla is a business journalist with 14 years of reporting experience. Based in Mumbai, Pilla covers pharma, healthcare and infrastructure sectors for Moneycontrol.
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