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Manipal’s revised offer to Fortis Healthcare explained

Manipal Health’s new proposal is a multi-step complex offer, which includes demerger, stake sale, merger, rights issue, open offer, debt issuance and brand sale. The deal values Fortis Healthcare at Rs161/share.
Yesterday, late in the night, Fortis received two offers, one from Radiant backed by PE firm KKR and other from Manipal Health, backed by PE firm TPG.

We have already explained Radiant’s complex, multi-step offer (read here). You can also read the entire ‘Fortis Saga’ on our website. IHH’s revised offer is also available on our website while revised offer by Munjals and Burmans can be read here.

Manipal, earlier had revised its offer in which it has removed the condition to buy majority stake in SRL and had valued Fortis Healthcare at Rs155/share. As per yesterday’s revised offer, Manipal is now valuing Fortis at Rs161/share.

The new proposal is a multi-step complex offer, which includes demerger, stake sale, merger, rights issue, open offer, debt issuance and brand sale. This is most complex deal among all the deals received by Forits, as it has an additional requirement by Manipal to have a major say in SRL’s matters. Manipal Health will also get listed publically, as it becomes a part of the resultant entity of Fortis + SRL + Manipal Health.

Below is the rundown of the two earlier proposals:

Offer on March 27, 2018: Demerge the hospital business into Manipal Health and buy 50.93% stake in SRL separately from Fortis Healthcare and other PE investors. The discontent shareholders were not happy with this deal.

Revision on April 10, 2018: Manipal Health revised its terms and dropped original plan to buy majority stake in SRL, increased the offer price of Fortis to Rs155 per share.

The revised proposal April 24, 2018

Step 1 –Demerger of hospital business and SRL of Fortis Healthcare.

Step 2 – Buy 5% stake in SRL from FHL (~Rs180cr). The proceeds to be used to repay the debt, while FHL retaining a majority stake in SRL.

Step 3 – Manipal Health to acquire 30.93% of SRL’s equity from the existing PE investors who will exit from the company. This will take Manipal’s stake in SRL to 35.93%, while Fortis’ stake in SRL will come down to 51.24%. The whole transaction values SRL at Rs3,600cr, while Fortis’ stake in SRL gets valued at Rs39 per share. While Manipal Health becomes the second largest shareholder in the company, it also wants to appoint majority of board of directors on SRL’s board and control 51% of the voting rights in SRL. It also demands to have limited veto rights in certain matters pertaining to SRL.

Step 4 – Possible merger between Fortis Healthcare and SRL and Manipal will have no objection in this matter provided all the regulatory inquiries conclude without any adverse material impact.

Step 5 – After this restructuring, Manipal Health will get listed publically.

Step 6 – Manipal Health will launch a rights issue of up to Rs4,000cr. This will provide an opportunity to the shareholders of Manipal Health. The funds raised will be infused in the combined entity. Manipal Health has revised the premium offered to Fortis Healthcare to Rs1,319cr vs. earlier premium offered Rs1,058cr. Fortis Healthcare’s hospital business is now valued at Rs6,322cr (Rs122 per share) vs. 6,061cr (Rs117 per share offered in the earlier revised offer on 10 April 2018.

Step 7 – Debt commitment of up to Rs750cr to Fortis Healthcare upon the completion of necessary regulatory/shareholder’s approval. Manipal Health has already received an in principle approval to these debt facilities from ICICI Bank.

Step 8 – Open offer by Manipal promoter and TPG to the shareholders of the resultant entity to acquire 26% of the outstanding share capital. The open offer shall not be less than Rs121 per share.

Manipal has also said that all the outstanding debt of FHL will be transferred to the resultant entity. Existing cash and cash equivalents at Fortis Healthcare and its subsidiaries and cash generated by disposal of Fortis Healthcare’s stake in RHT and cash received by tax refunds will be used to reduce the debt of Fortis Healthcare. Further, Manipal Health has also proposed to sell the Fortis brand and the proceeds generated through this will also be used to reduce the indebtedness of Fortis Healthcare.

Manipal has given five days, up to April 28, for the board of Fortis Healthcare to accept this binding offer.