Who will be the last one standing for Fortis?

The lobby of Fortis Memorial Research Institute (FMRI) in Gurugram gives little indication that the hospital group is in the eye of a high-profile, stormy, merger process. People from various countries walk around, poring over their medical reports or sitting down in randomly placed chairs to just catch some rest.

In another silent corner of the lobby, a picture of Fortis’ Founder-Chairman, the late Dr Parvinder Singh, adorns the wall. The plaque below states his vision, “to create a world-class integrated healthcare delivery system in India, entailing the finest medical skills combined with compassionate patient care.”

In the building across the road, Fortis Healthcare Chief Executive Bhavdeep Singh types at his laptop in his glass-windowed cabin that gives him a view of FMRI. It seems like business as usual, it’s anything but.

After months of speculation that Fortis Hospitals had been receiving overtures from financial and hospital groups, an announcement had been made that private equity TPG-backed Manipal Hospitals had made an offer to merge the hospitals business with itself. A complex initial transaction that involved investments of ₹3,900 crore.

As minority shareholders upped the ante, unhappy with the Fortis valuation and structure, a revised proposal was made by the Dr Ranjan Pai-led Manipal Group, though nothing had changed in terms of the deal’s possible pitfalls. These involved a legal tussle between Fortis’ former promoters Malvinder and Shivinder Singh and Japanese drugmaker Daiichi Sankyo and a possible payment of ₹3,500 crore as damages by the Singh brothers, an arbitration award they were legally contesting. Fortis also faces an ongoing investigation into some of its financial transactions, besides other controversies it faced on the patient front involving hospital billing.

Attractive again?

But even as investors digested Manipal’s revised proposal, old suitors for Fortis seemed to find it attractive again and came back with overt and covert bids.

On Thursday night, a joint bid was announced from the Hero/Munjals-Burman combine to help Fortis with its immediate liquidity crisis and on Friday, Malaysia’s healthcare major IHH Healthcare Berhad finally confirmed its bid to the stock exchange.

Speaking to Pulse after the first formal bid by Manipal Hospitals and ensuing investor concerns, Singh explained what had clinched the deal for Manipal Hospitals over others. Fortis and Manipal are hospital organisations and the merger would open up “career opportunities, we can take care of more patients, ….more from a research perspective, from a clinical trial perspective,” he said.

Singh points to pictures in his laptop from different Fortis hospitals that had continued with their “Swacch Fortis” campaigns where employees helped clean a particular outdoor location. This is not mandated, but employees participated even on the day there was a lot of “noise” around the Manipal deal, says Singh, on employee morale. Of course there are questions, he says, but they are addressed through public interactions.

Strategic or not?

But the “noise” around Fortis just got louder with the latest bids opening a new flank for it.

The Hero-Burman bid by way of a preferential allotment appears to be a simpler transaction and will address immediate financial requirements of Fortis Hospitals, says Kritika Agarwal, Principal at Majmudar & Partners.

“How this fits in with the Manipal transaction needs to be assessed, including any penalty provisions if the Manipal transaction was to be terminated,” she points out. A merger entails business and employee integration, so the Hero-Burman bid is more beneficial from the integration standpoint, she adds.

But some doctors and healthcare-watchers question what had changed in the weeks since the Manipal bid that brought back old suitors. The Manipal bid is “strategic” with the promoters having a plan to buy back assets and invest in the entity.

The Hero-Burman bid brings immediate funds, but is short-term and unclear on dealing with Fortis’ other liabilities, a healthcare expert said. And IHH says in its bid that it can provide Fortis an “alternative transaction construct” to the Manipal bid.

With these being the cards laid before the Fortis board, it will have to decide sooner who to go with. And the next several days, may be hours, could be crucial in determining who will be the last one standing for Fortis.