MUMBAI (Reuters Breakingviews) – A public penta-scrum poses a quandary for Fortis Healthcare’s board. Five suitors are vying to invest in the scandal-hit Indian hospital operator, valuing it at up to $1.4 billion. The offers range from minority stakes to a full takeover. Hedge funds may want a quick exit, but as directors meet on Thursday to evaluate proposals, they would do well to remember that the highest bid may not be the best for a business treating the ill.
Suitors are circling after lenders seized equity pledged by the founders, the Singh brothers. The interest reflects feverish demand for private medical care in India, thanks to a growing middle class and cash-strapped public health services. Fortis’ portfolio of assets in prime urban locations is also hard to replicate.
To get back on its feet, Fortis needs short-term funding as it grapples with fraud investigations. To thrive, it needs a long-term owner with experience of running hospitals.
The highest largely tentative bid is from Malaysia’s IHH Healthcare, which has offered to invest as much as $600 million into Fortis at a valuation of up to 175 rupees per share, compared to the current 153 rupee share price. Yet IHH has stalked Fortis for more than a year and failed to get comfortable with a deal. Similar or smaller, predominantly non-binding, bids come from KKR-backed Radiant Life Care and China’s Fosun International.
The highest binding offer comes from Indian motorcycle tycoon Sunil Munjal and Anand Burman, of consumer goods firm Dabur, who propose to invest nearly $270 million through equity and warrants, valuing Fortis at up to 176 rupees per warrant. Their lack of experience in the sector, however, is a worry.
The only offer that solves both problems is one of the lowest, at 160 rupees per share, from privately held Manipal Hospitals and TPG Capital, and it is binding. That involves a more than $300 million cash injection followed by a merger with Manipal. This combination would create India’s largest private hospital group by revenue.
The board itself is a final complication. Its composition is likely to change under pressure from shareholders, and investors will vote on that before they decide whether to follow the official recommendation on any deal. Still, even unsettled directors would do well to consider Fortis’ longer term rehabilitation.