South African healthcare major Life Healthcare (LHC) will invest up to Rs 794 crore to raise is stake in Max Healthcare (MHC), one of the leading private healthcare providers, to 46% from the current 26%.
LHC will pay Rs 67.50 per share to equalise its stake with Max India in MHC, in an all cash transaction, which puts the enterprise value of MHC at Rs 3,650 crore, and equity value at Rs 2,884 crore.
LHC will invest up to Rs 397 crore directly in MHC by subscribing to fresh equity at Rs 67.50 per share. It will also acquire up to 13.3% of existing stake in the company from Max India at Rs 67.50 per share for up to Rs 383 crore.
MHC will utilise funds for growth and to retire debt, Max India said in a statement.
In January 2012, Life Healthcare had invested Rs 50.24 per share, or about Rs 516.5 crore, to acquire a 26% stake in Max Healthcare. Post transaction, both JV partners will have equal representation on the MHC Board.
The transaction translates to an equity value of Rs 2,884 crore for Max Healthcare based on the valuation of shares for the contemplated transaction.
Max India holds 65.86% equity stake in Max Healthcare, Life Healthcare 26%, International Finance Corporation (IFC) 7.5% and ESOP holders the balance 0.64%.
IFC has the option of either maintaining its 7.5% stake by converting a portion of its preference shares to equity, or exercising a proportionate tag along right with Max India in order to dilute its shareholding to 5.4%. The actual amount invested by Life Healthcare will vary depending on IFC's decision, the company said in a statement.
Rahul Khosla, managing director, Max India and chairman, Max Healthcare, said in a statement, "As MHC prepares itself for its third wave of growth it will stand to benefit immensely from LHC's considerable experience in managing a large and widespread network of hospitals. Both the joint venture partners are committed to expand and grow the company rapidly."
Life Healthcare is the second largest private hospital operator in South Africa with 63 operating facilities.
Andre Meyer, CEO, Life Healthcare, said, "India is a very important market for us. Our relationship with Max had been very constructive. Both Max and LHC were very keen on growing our partnership and the stake equalisation is an important step in this direction."
Max Healthcare operates 12 hospitals in North India, with a focus on tertiary and quaternary care. It undertook an exponential phase of organic expansion a year ago by launching four new hospitals in Delhi-NCR and North India to nearly double its capacity to almost 2,000 beds. The company's revenue in fiscal 2014 rose 22% year on year to Rs 1,407 crore. Operating profit in the last fiscal grew 59% year on year to Rs 113 crore.