Fortis Healthcare demerger: Rakesh Jhunjhunwala questions deal with Manipal; will the sale process flounder?

‘Big bull’ Rakesh Jhunjhunwala has reportedly questioned a  recent deal between Fortis Healthcare Ltd (FHL) and TPG Capital-backed Manipal Hospitals, which will see the former sell its hospitals and a diagnostic business to the latter, according to a report. Jhunjhunwala, a minority shareholder who, along with his associates, holds around one percent of Fortis, said the hospital chain should be sold via a ‘fair’ process that allows all interested parties to bid. Speaking to  The Economic Times, the ace investor said he has no plan to vote against the deal. “First, let a stage come when the deal needs to be opposed. Today, it’s just an announcement. The board doesn’t have the power to do the deal…I think the stage where the deal will need to be voted upon will not come at all…" he told the newspaper. Furthermore, Jhunjhunwala also questioned the ‘sanctity’ of the deal, approved by a board appointed by a group of former shareholders. “The deal on behalf of Fortis hospitals has been approved by a board directors of which have been elected under the auspices of Shivinder Singh and (his family). They are no longer the shareholders of this company.” [caption id=“attachment_2036147” align=“alignleft” width=“380”] File photo of Rakesh Jhunjhunwala. Reuters[/caption] Minority shareholders could form a group to oppose the deal. “In case, there is stiff resistance from the minority shareholders, TPG Capital-MHE may have to sweeten the deal,” an unnamed source told the  DNA. Meanwhile, private equity firm East Bridge Capital, on Tuesday, picked up an additional 3.86 percent stake in Fortis Healthcare through an open market transaction, giving itself additional voting rights, MoneyControl reported. Prior to the purchase, East Bridge had a 5.87 percent stake in Fortis. On 29 March,  The Economic Times reported that Fortis’ minority shareholders were unhappy with the sale of its hospital business to Manipal Hospitals. Shareholders reportedly felt the deal significantly undervalued the worth of the hospital business. On 27 March, the FHL board approved the demerger of its hospitals business, to be sold to Manipal Hospitals and TPG Capital, and the sale of a 20 percent stake in diagnostics chain SRL Ltd, in a Rs 3,900-crore deal. A Fortis statement said: “The board has also approved sale of its 20 per cent stake in SRL Ltd. 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 per cent stake in SRL.” Deal math As part of the proposed deal, Ranjan Pai and TPG will invest Rs 3,900 crore into Manipal Hospitals. The funds will be utilised by Manipal Hospitals to finance the acquisition of a 50.9 percent stake in SRL (20.0 percent from FHL and 30.9 percent from other investors for which discussions are currently underway). Fortis’ erstwhile promoters, Malvinder and Shivinder Singh, will have a 0.3 percent stake, down from about 0.8 percent now. When the demerger becomes effective, a FHL shareholder will receive 10.83 shares in Manipal Hospitals - the resultant combined hospitals business - for every 100 shares of FHL. Manipal Hospitals, part of the Manipal Education and Medical Group (MEMG), is owned by Ranjan Pai and has been backed by TPG, a global alternative asset firm and an experienced healthcare investor. With inputs from agencies