Ranjan Pai and TPG to invest ₹3,900 crore into Manipal Hospitals.

CHENNAI: As widely anticipated, the Board of directors of trouble-ridden Fortis Healthcare Limited (FHL) has cleared the de-merger of its hospitals business (“Fortis Hospitals”) into Manipal Hospital Enterprises Private Limited (Manipal Hospitals).

The board, which had an elongated session on Tuesday, also approved the sale of its 20% stake in SRL Limited (SRL) to Manipal Hospitals.

The resultant entity Manipal Hospitals will be a publicly-traded company listed on NSE and BSE.

The remaining FHL will be an investment holding company with 36.6% stake in SRL.

As part of the proposed transaction, Ranjan Pai and TPG will invest ₹3,900 crore into Manipal Hospitals.

The funds will be utilized by Manipal Hospitals to finance the acquisition of 50.9% stake in SRL (20.0% from FHL and 30.9% from other investors for which discussions are currently on).

In addition, the investment will support the proposed acquisition of hospital assets owned by RHT Health Trust (RHT) and the growth of the hospitals and the diagnostics businesses.

Manipal Hospitals, a part of Manipal Education and Medical Group (“MEMG”), is owned by Mr. Ranjan Pai and has been backed by TPG, a leading global alternative asset firm and experienced healthcare investor, since 2015.

It is the 4 th largest hospital chain in the country with a strong presence in South India.

Manipal Hospitals currently owns and operates 11 hospitals (including one in Malaysia).

The proposed transaction is subject to shareholders’ approval, creditors’ approval, applicable regulatory nod (including Competition Commission of India, SEBI, stock exchanges and National Company Law Tribunal and other customary conditions precedent.

Upon obtaining all approvals, when the de-merger becomes effective, for every 100 shares of FHL held by a shareholder, the shareholder will receive 10.83 shares in Manipal Hospitals (i.e. the resultant combined hospitals business).

Walker Chandiok & Co LLP, the independent valuer jointly appointed by FHL and Manipal Hospitals, has recommended the share exchange ratio, which has been accepted by the respective boards of FHL and Manipal Hospitals.

Karvy Investor Services Limited provided a fairness opinion to FHL on the share exchange ratio given the underlying value.

Fortis Healthcare is without a defined promoter ever since the shareholding of founders - Malvinder and Shivinder Singh - dropped to 0.77% following the sale of their pledged shares by some lenders in February this year. Currently, nearly 80% of Fortis’s shares are with institutional funds and public. Twenty per cent pledged promoters’ shares are held by lenders such as Yes Bank and Axis Bank.

The deal comes even as Fortis has been in the eye of a storm over its founders' action. Fortis is under investigation by market regulator - the Securities and Exchange Board of India- and Ministry of Corporate Affairs for any possible violation of corporate laws after the company announced that the former promoters have taken out ₹ 473 crore out of the company through alleged questionable inter-corporate deposits.

A legal battle between the Japanese drug-maker Daiichi Sankyo Co. Ltd. and the Singh brothers (promoters of Forti) may yet prove a major hurdle in the way. Daiichi had alleged that the Singh brothers had suppressed material information when they sold Ranbaxy Laboratories Ltd. to the Japanese drug-maker in a $4.6 billion deal in 2008.

Daiichi said that the Singh brothers's bid to get an investor in Fortis Healthcare would dilute assets and hamper its efforts to recover damages from them. A Singapore tribunal had ordered the brothers to pay a sum of Rs. 2,562 crore to Daiichi Sankyo in damages.