Fortis Healthcare makes competing bid for Parkway

India-based hospital operator Fortis Healthcare together with a company owned by its controlling shareholders, brothers Malvinder Mohan Singh and Shivinder Mohan Singh, yesterday launched a general offer for the 74.73% of Singapore-listed Parkway Holdings that it doesn't already own.

If the offer, at S$3.80 per share, is accepted in full, the buyers will have to pay approximately S$3.2 billion ($2.3 billion), although they said in an announcement that the intention is to keep Parkway as a listed company in order to allow its shareholders the option to participate in the growth of the combined company. Parkway is in the same industry as Fortis, operating hospitals primarily in Malaysia and Singapore, but with selected interests in Brunei, India and China, and the combination of the two companies would create a leading healthcare services provider in Asia with 68 hospitals and close to $1 billion in annual revenues, Malvinder Mohan Singh said at a press conference yesterday.

However, this isn't a simple case of the largest shareholder making a general offer following an acquisition, but rather the continuation of a bidding war for Parkway, which started when Fortis bought a 23.9% stake in the company from private equity firm TPG Capital in March. That deal, which cost Fortis S$959 million ($686 million), left the Indian firm as the largest shareholder of Parkway, ahead of state-owned Malaysian investment company Khazanah Nasional with 23.3%.

Clearly not happy with these developments, Khazanah on May 27 launched a voluntary partial offer for Parkway worth S$1.18 billion. The Malaysian firm offered to buy 313 million shares in Parkway at a price of S$3.78 apiece, which would bring its total holding in the company to 51.5%. The offer, which represents a 25.2% premium to the latest market price before it was announced, requires the approval from independent shareholders and will remain open until July 8.

But Fortis apparently has other plans. The firm said already when it acquired TPG's stake that it intended to play an active role in the management of Parkway and since the acquisition the Singh brothers and two other Fortis directors have taken seats on the Parkway board. The Fortis group has also continued to buy Parkway shares in the open market, increasing its interest to 25.27%.

Yesterday's offer by Fortis is only 2 Singapore cents above Khazanah's offer per share, and since Parkway's share price has adjusted upward towards the Khazanah offer price, Fortis's offer is also only equal to a 6.4% premium versus the most recent closing price of S$3.57 on June 30. (The shares were suspended yesterday as the new offer was announced). However, the fact that the Indian firm is making an offer for all the remaining shares in the company, as opposed to just a smaller portion, does make a difference. For one, shareholders who wish to participate in the transaction can choose to sell all their shares without the risk of being left with a smaller portion that may be difficult to shift as the free-float declines.

No doubt, Fortis is feeling confident that shareholders will prefer its offer after Morgan Stanley, acting as an independent financial adviser to Parkway's independent directors, said that "although the value implied by Khazanah's offer price is reasonable, the offer price is not compelling in the context of a partial offering involving a change of control". In the circular sent out to investors ahead of the upcoming vote, the independent directors said they concur with Morgan Stanley's opinion.

Fortis and the Singhs, through their acquisition vehicle RHC Healthcare (in which Fortis owns 49% and the Singhs the rest), said their long-term vision for the company is to operate Parkway and Fortis as a single organisation so as to "leverage combined competitive strengths and realise synergies between the two organisations".

The combined group would have leading market positions in Singapore, India and Malaysia, where healthcare spending is expected to grow at a compound annual growth rate of 10%, 17% and 10.8% respectively between 2009 and 2014, RHC Healthcare and Fortis said in a joint announcement. It will also provide an enhanced platform to capture the opportunities created by the growing medical tourism market, which is estimated to be a $1.5 billion industry this year, according to Indian Brand Equity Foundation.

Malvinder Mohan Singh said the offer does have the full support of Parkway's management team, although it is conditional upon it getting enough acceptances to the offer to push its shareholding above 50%.

RHC Healthcare is advised by Macquarie and the Royal Bank of Scotland, while Khazanah is advised with regard to its partial offer by CIMB Bank and Deutsche Bank.

Neither Khazanah nor CIMB returned calls for comments about how they plan to respond to Fortis's offer. Deutsche Bank declined to comment.