Parkway Holdings: Prize for Malvinder and Shivinder Singh?

Fortis Healthcare is locked in a battle with Malaysian sovereign wealth fund Khazanah for control of Singapore-based Parkway Holdings, Asia's biggest listed hospitals firm.

 

Fortis, which owns roughly 25% of Parkway, was keen to build a controlling stake in the company before Khazanah made a surprise $835 million offer last month to lift its stake from 23.5% to 51.5%.

 

Parkway operates 16 hospitals across Asia including Singapore, Malaysia, India and China. Its prized assets are Singapore hospitals, Gleneagles and Mount Elizabeth, whose patients include many wealthy businessmen and politicians.

 

Following are scenarios on what might happen next

 

Fortis makes punter-bid - (Most likely, for now)

Several analysts expect Fortis, controlled by billionaire brothers Malvinder and Shivinder Singh, to launch a counter- bid for Parkway at a 10-15% premium over Khazanah's S$3.78 a share offer.

 

A source linked to Fortis said the firm's preference is to make a partial offer to buy just over 50% of Parkway instead of making a general offer, which would require a waiver from authorities. But bankers say this is unlikely as Singapore has never given a waiver to firms such as Fortis, which bought into Parkway less than six months ago.

 

If it fails to get an exemption, Fortis will have to spend at least $2.5 billion to buy Parkway shares it does not already own.

 

Fortis plans to raise as much as $1.2 billion, preparing itself for a possible counter-bid. It bought into Parkway to use it as a springboard for overseas expansion.

 

Malvinder, Fortis' chairman, moved to Singapore with his family and took over as Parkway's chairman.

 

"It would be a choice between the long-term vision of Singh brothers and managing short-term financial opportunities," said Muralidharan Nair, partner for health sciences at Ernst & Young in Mumbai.

 

With a combined fortune estimated at $3 billion by Forbes magazine -- good for 17th place on its India rich list -- the Singh brothers have the means and access to capital to take on the Malaysian fund.

 

A successful counterbid by Fortis may also put a question mark on Parkway's expansion into Malaysia, as most of the Singapore firm's operations in the country are carried out via Pantai, in which it holds a 40% stake and the balance is held by Khazanah.

 

Pantai accounts for a quarter of Parkway's revenue and almost one-third of earnings before interest, tax, depreciation, amortisation and rent, according to Credit Suisse.

 

Fortis makes no counter-bid, hopes Khazanah offer fails - (Likely, for now)

Making a counter-bid for Parkway was originally the second choice for Fortis, said sources aware of the Indian company's game plan.

 

The recent posturing by Fortis has kept Parkway's shares at or above Khazanah's offer price and the Malaysian firm may not be able to get enough acceptance as a result.

 

Should Khazanah fail, Fortis will retain control of Parkway with four seats on the board versus Khazanah's two.

 

Khazanah cannot accept any of the shares offered if the acceptance falls short of 51.5% under Singapore rules relating to partial offers, a spokeswoman for Khazanah said.

But if the Malaysian wealth fund succeeds in its offer, Fortis will be stuck with a minority stake in a company it cannot control although it might be in a position to block proposals made by a Khazanah-led management.

 

Khazanah and Fortis may also try to reach some form of compromise whereby both parties have a say in the strategic outlook for Parkway

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Fortis has been lobbying the governments of Singapore and Malaysia to reach some kind of a deal, sources said.

 

Fortis sells out - (Unlikely, for now)

Fortis may decide to sell out, but only if Khazanah raises its offer price.

 

Based on Khazanah's offer price, Fortis will make a gross profit of about 6.1% on its original investment of $685 million, which valued Parkway at about S$3.56 a share.

 

After deducting around 2% for fees and commissions payable to bankers, lawyers and others associated with the deal, the Indian company is set to pocket a relatively small profit of around $30 million.

 

"The Singh brothers will put rationality before adrenalin push. They won't fight for ego. Expect them to exit Parkway if they get a good premium," said Jagannadham Thunuguntla, equity head at SMC Capitals in New Delhi.