Malaysia's IHH Healthcare nears takeover of Fortis with $1.1 billion bid

By Tanvi Mehta and Alasdair Pal

MUMBAI/KUALA LUMPUR (Reuters) - Malaysia's IHH Healthcare Bhd is set to take control of India's Fortis Healthcare after its bid of up to $1.1 billion was chosen over a rival's, giving it ownership of over 30 hospitals amid a private healthcare boom in India.

IHH's 170 rupees per share offer for as much as 57 percent of Fortis was chosen on Friday over a joint bid from Indian firm Manipal Health Enterprises Ltd and U.S. private equity firm TPG Capital.

The offer represents a roughly 20 percent premium to its last closing price and caps a months-long bidding war for control of the Indian company that drew interest from domestic and international suitors.

IHH's offer is the third one that cash-strapped Fortis has approved this year, with a previous offer being shot down by shareholders. However, this time there is more confidence of the deal being approved.

"The cash repairs the balance sheet and the tender offer should clean out a lot of the banks that could have led to an overhang of stock, which the other offer (TPG-Manipal) didn't have ... We plan to support it and think the bid will go through," an investor among Fortis' top 10 told Reuters.

IHH's offer is slightly lower than the 175 rupee offer it had proposed earlier, but the investor said it was "not a bad outcome considering how long it has taken and how badly managed the process has been."

Fortis shares rose only 4 percent to 147.90 rupees on Friday, which analysts attributed to IHH's win and offer price coming in as expected. Four analysts told Reuters they expect the deal to finally get shareholder approval.

"It's a very straightforward deal. Given the problems Fortis has, this is the best they can get at this time," said Nitin Agarwal, an analyst with IDFC Securities.

Fortis has struggled with a cash crunch, rising debt, and image problems.

Indian regulators are looking into allegations that its founders took funds from the company. The two founders, who have since left the company, deny wrongdoing.

But the company's assets are still considered attractive thanks to rising private healthcare spending in India. Also, the government aims to expand insurance to millions of people in a country that lacks adequate health facilities, benefiting private hospitals such as those run by Fortis.

Fortis said it will call a shareholder's meeting at the earliest to seek approval for the IHH bid.

POWER STRUGGLE

IHH will pay Fortis 40 billion rupees ($585 million) for a 31 percent stake. Under Indian regulations, IHH will then bid for another 26 percent of Fortis, offering up to 33 billion rupees.

Fortis said it settled on IHH's "simpler" offer, which will allow the Indian firm to refinance up to 25 billion rupees of debt, and address its short-term liquidity needs. Manipal had offered 21 billion rupees at 160 rupees per share.

On a conference call with the media, Fortis Chairman Ravi Rajagopal said he does not expect the company's current management structure to change after the IHH deal.

Malaysian brokerage PublicInvest Research said the acquisition was a good step for IHH to expand its footprint in India at a good price.

"Greenfield doesn't really work in India due to the long bureaucratic process for greenfield acquisitions," the brokerage said.

IHH said in a separate statement it expects the deal to be completed in the fourth quarter and does not expect it to have any material effect on profits for the fiscal year ending Dec 31. Its shares were nearly flat in late afternoon trading.

Fortis had accepted in March a merger offer valued at 150 billion rupees from Manipal-TPG, but four other suitors soon threw their hats in the ring, escalating it into a rare bidding war.

The company then approved an 18 billion rupees investment offer from a consortium of two prominent Indian business families.

But with several shareholders expressing their displeasure through the process, Fortis was forced to re-evaluate its initial choice and re-open the bidding process. Several directors stepped down from the board as concern mounted over how they had handled the bids.

Fortis shares have declined 8 percent so far this year.

($1 = 68.3800 Indian rupees)

(Reporting by Tanvi Mehta and Alasdair Pal; Additional reporting by Liz Lee and Chris Thomas; Writing by Sayantani Ghosh; Editing by Muralikumar Anantharaman/David Evans)