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This article is more than 3 year old.

Fortis deal was simple, holistic and fair, says IHH CEO Tan See Leng

Fortis deal was simple, holistic and fair, says IHH CEO Tan See Leng
IHH Healthcare CEO  Tan See Leng said the Malaysian firm had offered a simple, holistic and fair deal to Fortis shareholders, and added that Fortis was complementary to IHH's current footprint in India.
Leng further said the company would have to consider issues such as continuing with the Fortis brand, and said IHH could raise funds via a rights issue. Leng further added IHH had decided to come in with about 70 percent of the funds needed for Fortis.
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Edited Excerpt:
Nisha: I want to understand what were the valuation drivers for buying out Fortis and you had spoken to Fortis last year same time as well when the deal broke and you broke your exclusivity period as well with the company. What changed over time that you are now upbeat on acquiring the same company?
A: We have always been looking for opportunities in India because India is our fourth home growth market. If you look at where we ended last year, there were couple of issues we could not sort of get grip on. One of the key thing was really on the Daiichi sanctions on the shares. There was some sort of stay in terms of execution or the sale of the shares itself because of that at that particular point in time we decided that we couldn't go ahead with the acquisition itself.
Nisha: What drove the valuations to Rs 170 per share and how much did it come down by because of the findings of the investigation report by Luthra & Luthra?
A: There were multiple data points, there was no one particular sort of fact in terms of the data points. There are multiple data points where we are actually trying to relate it. In terms of the performance from a year ago plus the due diligence findings to the final auditors financial statements in terms of qualifications, I think the investigations that went into as a result of what was ordered by the board, all of these factors and also broader industry specifics in terms of the performance, levels were right at this particular valuation.
Ekta: We do have a SEBI probe which is pending, we do have a forensic audit as well as may be an SFIO probe where the details of that particular investigation is not known to the market or not known to anybody right now. Is there any condition that you have, that if you don't like what you see, you can walk away?
A: No. We are committed to the deal. At this particular point in time our process is still subject to us going to the shareholders for their approval. Of course the CCI will also have to clear that. So, these are the two main hurdles that are left. The shareholders' approval is going to happen sometime in mid-August so we are waiting for that. Otherwise if the CCI's approval is obtained together with the support and approval with 75 percent of the voting shareholders present at the meeting itself, we are pretty much going ahead.
Ekta: There is a possibility that there could be more medical devices which could come under health control or price control plus there are lot of issues in cases coming up with regards to overcharging, the Delhi government is coming up with possible price controls etc and many different kind of regulations and subsidies, so in that context what is your strategy in India?
A: With this it would make the Indian healthcare market into a massive power house and a platform for medical tourism to come into India and to tap on the huge talent pool of Indian medial doctors, surgeons, healthcare professionals, nurses, videographers, allied healthcare support as well as occupational and physiotherapists etc etc. So, generally the increased regulation, the increased focus on the industry would tend to produce longer term benefits and results. As a corollary to that if you look at where we are, we have never slipped any assets because we are not a fund or we don't have to sort of have 3X returns in a very short period of time because we are operators. All of us here, if you look at the senior management of our respective companies, all of us are managers, we have professional management. So, whenever we go into a country or any asset that we merge with, we are in it for the long haul.
Nisha: There are many other hospital transactions, assets on sale right now, there is Medanta, there is Seven Hills and many of them, are you also interested in others? You did make a comment very recently that you are focusing on brownfield expansion in India?
A: We looked at quite a number of the assets. In terms of the geographies in India itself where we already have our presence, we will not seek to overlap them because we are also worried about the short term impact of cannibalisation. So, when the opportunity for Fortis came up, you will find that it is actually very complementary to our current footprint in India. Today we are largely concentrated in South, South East of India itself. We have a hospital in Mumbai and there is another one that is yet to be completed coming up in Mumbai. So, the Fortis footprint we find it as a very good complement to where we are.
Nisha: You must have got enough time to speak to the shareholders because their vote is very important for this transaction to go through? Rs 170 per share is the floor price for the open offer. Are you open to negotiation at all? Have the shareholders also put in a request because there are certain banks you have converted the debt of the company into equity at a much higher rate than this?
A: Given the headwinds that is coming, we believe that this actually quite a fair price. Given the fact that whatever we have put on the table so far is a premium to what the market price is being traded at today. We have offered a very holistic as well as a very simple solution to all shareholders, current existing shareholders in Fortis. For those who want to exit, we have given them the opportunity - all cash deal - and for those who believe in our story and want to ride upside with us we would certainly welcome them to support us.
Nisha: Are you going to put in more money once the deal is consummated? How much are you looking at for the ship to really stabilise quickly?
A: Our estimate is that the company needs probably something closer to Rs 5,800 to 6,000 crore. Now, like I said earlier we have also taken into consideration because in a run-up to the offer, we have also taken in to consideration the wishes and also the aspirations of many minority shareholders who said that they don't want to be diluted excessively at whatever offer price we put up because they want and they believe that with us coming in the price would be able to stabilise quite quickly.
We believe that the moment we remove the effect of the leakage in terms of the rental paid to the RHT, companies EBITDA will go back up in a steady state, probably some Rs 500 crore a year. In terms of the restructuring of some of the deadlines we would then be in a better position to leverage up another Rs 1,000 to Rs 1,500 crore and in the event that we can't do that, we always have the option to issue a rights issue.
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