Investors hammer Fortis stock

 

Peeved public investors hammered Fortis Healthcare shares, which dropped almost 15% intraday, after the second-largest hospital chain approved a takeover deal by Manipal Hospital Enterprises on Tuesday night. Activists and arbitrage investors said the deal undervalued Fortis and subsidiary SRL Diagnostics, with some of them talking up a possible counter bid from Malaysia’s IHH Healthcare.

Manipal, backed by private equity giant TPG, would start meeting with investors to explain the long-drawn, convoluted deal-making in a company staring at bankruptcy and facing multiple probes into financial irregularities.

Fortis shares ended Wednesday’s trade 13.4% down at Rs 123 apiece in a falling Mumbai market. Future & options’ expiry added to the selling pressure on the stock, which has had a rollercoaster ride in recent months.

The Fortis board approved a deal to demerge the hospital business into Manipal Hospital Enterprises, which would also buy controlling interest in SRL Diagnostics. This valued Fortis at Rs 98 per share and SRL Diagnostics at around Rs 30 apiece, coming much below market expectations.

“There’s a feedback that we haven’t explained the deal well enough to investors. A lot of them are not familiar with the operational metrics of the privately held Manipal. We are meeting up with several other investors. Some of them have also voiced structuring concerns, which we are willing to tweak if reasonable,” sources working on the just announced acquisition offer said.

The sources added that the offer was the best within the risk-taking abilities of the acquirers, Manipal and global buyout specialist TPG. “We don’t think anyone who has done due diligence would be more adventurous on this deal,” they added.

Speculation is life that IHH, through its Singapore-based Parkway Pantai, is preparing to launch a counter offer. For this, it needs a board rethink unless it intends to unfurl a hostile takeover, which is fraught with risks in India. The ex-promoters of Fortis — Shivinder and Malvinder Singh — have expressed their support to the Manipal offer.

“Minority shareholders have reasons to be unhappy with the deal contours, especially with the residual shares in the holding company which has little or no value. But one cannot also overlook the fact that the assets have found a better home and promoter,” said Shriram Subramanian, MD, InGovern Research Services, a proxy advisory firm working with institutional investors.

Manipal chairman Ranjan Pai will be the largest shareholder in the merged entity with slightly over 36%, followed by TPG with 20% and Singapore’s Temasek with 7%. Temasek may offload the shares once the reverse merger into the hospital business of Fortis is completed.

Link: Times of India- March 29, 2018