Mumbai/New Delhi: Plans Rs 1,000-cr issue to fund acquisition; deal to help Khorakiwala clear Rs 500-cr debt

In the largest acquisition in the Indian healthcare businesses, Fortis Healthcare, promoted by the former owners of drug maker Ranbaxy, has acquired some of rival Wockhardt Hospital’s assets comprising eight operational and two greenfield projects for Rs 909 crore.

The deal will help Habil Khorakiwala-promoted Wockhardt Hospital repay its entire debt of Rs 500 crore. The remaining amount is to be used to expand 10 facilities and set up new ones.

Before this deal, the largest healthcare acquisition was the Rs 650-crore acquisition of Escorts Heart Institute, also by Fortis Healthcare, in 2005.

The acquisition of the 10 hospitals by Fortis will help the company, promoted by the Singh family, add 1,902 beds to its current capacity of 3,278 beds.

A Business Transaction Agreement (BTM) was signed today and the deal will be concluded by December, Fortis and Wockhardt Hospitals said in a joint statement.

Fortis will finance the acquisition through a mix of debt and equity. It will use Rs 350 crore from an earlier initial public offer (IPO) and proceeds from a proposed Rs 1,000 crore rights issue in a few months to fund the acquisition.

Talking to reporters at a press conference in Mumbai, Fortis Healthcare Managing Director Shivinder Mohan Singh said the acquisition would help the company move closer to its current target of reaching 6,000 beds and revenues of $1 billion (around Rs 5,000 crore based on current exchange rate) by 2012.

"With the acquisition of Wockhardt Hospitals, we will revise our target," he said.

Singh told Business Standard that Fortis would not retain the identity of Wockhardt Hospitals and would rename the facilities Fortis Hospitals.

The acquisition will include four hospitals in Bangalore, two in Mumbai and three in Kolkata. This includes two projects under construction at Yeshwantpura at Bangalore and Anandpur in Kolkata, which together will have 534 beds.

The acquisition includes Rs 190 crore earmarked towards capital work-in-progress for these two projects under construction.

The top management of Wockhardt Hospitals — including its chief executive Vishal Bali — will also move to the Fortis fold after the acquisition, along with 650 doctors and 1,300 other medical staff. The acquisition is free of debt and all the movable and immovable assets and manpower of the 10 hospitals will move to Fortis.

The acquired hospitals accounted for 85 per cent of the revenue for Wockhardt’s chain in 2008-09. The deal leaves Wockhardt with 10 hospitals, including seven super-specialty hospitals in Rajkot, Surat, Nashik, Nagpur and Hyderabad. In most cases, these hospitals are run by Wockhardt, but not owned by them.

Khorakiwala put the 10 hospitals on the block as part of a move to bail out the listed pharmaceutical company, Wockhardt Ltd, which has accumulated debt of over Rs 3,400 crore. The company, which borrowed heavily over the last few years to expand its global footprint, recently announced the sale of an overseas subsidiary and its nutrition business to raise around Rs 900 crore. Khorakiwala’s healthcare business came under pressure after Wockhardt aborted its Rs 800-crore public offer plan in February 2008. The Khorakiwala family was earlier trying to sell the entire chain for a valuation of Rs 1,200 to Rs 1,500 crore. The suitors had included Fortis, Apollo, Manipal Group and some private equity players.

“This has been a fair agreement for us. We believe Fortis will continue to deliver quality care and patient safety,” said Khorakiwala.