Investors Want Higher Price in Fortis Open Offer; IHH Unlikely to Oblige

Investors in Fortis Healthcare are said to be negotiating for a higher open offer price ahead of the company’s extraordinary general meeting (EGM) on Monday.

On July 13, Malaysia’s IHH Healthcare Berhad outbid the Manipal-TPG combine to win the race to acquire Fortis Healthcare (FHL). According to IHH’s binding offer, it will invest Rs 40 billion in the cash-strapped hospital chain via preferential allotment at Rs 170 a share.

Many feel that the stock has the potential to see an upside and can touch Rs 240-250 levels within a year of the IHH deal going through. So they want to wait and not tender their shares in the open offer. The stock closed at Rs 142 on the BSE on Friday.

Sources close to the development said the Malaysian company was unlikely to raise the open offer price as it felt it was a fair price to offer exit to investors at the moment. In fact, IHH was likely to go ahead with the open offer even if the shareholders voted down the company’s proposal to acquire a stake in FHL in the EGM, claimed sources.

Investors, however, are hoping for a higher price. Anurag Aggarwal, who holds nearly 100,000 shares of FHL, said he would not sell his shares at Rs 170 each. “I purchased these shares at Rs 230 apiece. I will purchase more shares, instead of selling. The time is right for those who want to buy the Fortis share and hold it for a long duration,” he said.

Another retail investor told Business Standard he did not feel Rs 170 a share was a lucrative offer to give his shares away.

Even institutional shareholders like YES Bank, which holds around 15 per cent of FHL, were unlikely to tender their entire shareholding in the upcoming open offer, said market sources. An e-mail sent to YES Bank went unanswered.

YES Bank is the single largest shareholder in Fortis. Other major shareholders include East Bridge Capital Management, York Capital Management Asia, and Jupiter Asset Management Asia.

Sources close to the development said YES Bank, which was not a strategic investor in FHL (it had acquired the stake by converting debt into equity by selling the pledged shares), might look to sell part of its stake.

What Fortis needs is a strategic long-term partner like IHH Healthcare to stabilise its business and address its immediate liquidity funding needs. We believe our offer is compelling, as shareholders have the opportunity to participate in the long-term value creation of Fortis and/or participate in the open offer,” said an IHH spokesperson.

The open offer commences on September 7 and closes on September 24, 2018.

IHH will invest Rs 40 billion in FHL through preferential allotment of shares (to its wholly-owned subsidiary Northern TK Venture), giving it a roughly 31 per cent of the company’s total voting equity share capital. After that, the Malaysian healthcare major will undertake a mandatory open offer for 26 per cent of shares at Rs 170 a share.

If the open offer is fully subscribed, IHH will have 57 per cent shareholding of FHL. The transaction will result in a change of control of the company. IHH, through NTKV, will be classified as the promoter of the company and have the powers to nominate directors, representing two-thirds of the board.

Analysts felt that there was a possibility of the Fortis stock going up in the coming months. “With a credible promoter, and liquidity concerns taken care of, FHL’s performance will improve. We are bullish on margins and liquidity. The stock may touch Rs 230-240 in a year,” said Sanjiv Bhasin, executive vice president, markets, India Infoline. He also felt the open offer might find takers from banks and financial institutions who have encumbered shares that they held as collaterals, as it offers them a fair exit from a stock that has under-performed. – Business Standard

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