India's Fortis picks Hero-Burman's investment offer after 5-way bidding war

Mumbai

INDIA'S Fortis Healthcare Ltd has accepted an offer of investment from two prominent business families, picking an underdog in a five-way battle for a piece of the promising yet cash-strapped hospital operator.

Hero Enterprise Investment Office and Burman Family Office will become Fortis' largest shareholder with an investment of 18 billion rupees (S$357 million), valuing the firm at about 90 billion rupees. Their offer was alone in excluding due diligence as a precondition, giving Fortis quick access to the funds.

The decision ends a bidding war to buy part or all of Fortis, which operates about 30 private hospitals in India and is in need of cash after an aggressive period of expansion.

The contest attracted deep-pocketed suitors seeking to capitalise on a lucrative private healthcare market that is expected to get a boost from a government plan to expand an insurance programme to half of India's 1.3 billion people.

Hero Enterprise is an investment unit of Sunil Munjal, whose family runs India's largest motorcycle maker, Hero MotoCorp Ltd. The Burman Family Office is the private investment arm of the family that controls consumer goods company Dabur India Ltd.

After the investment, Hero-Burman will together own just under 20 per cent of Fortis, including the 3 per cent they already own, Mr Munjal said at a televised news conference on Friday.

The overnight decision saw Fortis shares gain in premarket trading, only to fall as much as 4.9 per cent in afternoon trade.

"We believe the reasons for considering this offer could be no requirement of due diligence and lesser equity dilution as compared to other offers," ICICI Securities analyst Sriraam Rathi said in a research note.

"Munjals/Burmans have built successful businesses in non-healthcare fields and are passionate about the Indian healthcare industry," he said, expecting the offer to receive shareholder approval.

The consortium has offered to invest eight billion rupees through a preferential share issue at 167 rupees apiece, and 10 billion rupees via preferential issue of warrants at 176 rupees each.

Fortis received four binding offers out of five in total, of which industry experts saw as favourites domestic rival Manipal Hospitals and backer TPG Capital Management LP, as well as Malaysia's IHH Healthcare Bhd.

Fortis agreed in late March to be bought by Manipal before shareholder activism and competing offers scuttled that plan.

Others vying for a stake included Radiant Life Care Pte Ltd, backed by KKR & Co LP, and China's Fosun International Ltd, which had made a non-binding offer.

Manipal did not have immediate comment. Radiant and Fosun could not be reached for comment.

IHH, which had offered 175 rupees a share for a 40 billion rupee investment, said it was disappointed with the decision. "We are open to further discussions with all stakeholders, and look forward to the support of Fortis shareholders," IHH chief executive Tan See Leng said in a statement.

Fortis has been struggling with insufficient cash and growing debt. REUTERS