On Wednesday, IHH issued a second non-binding letter to Fortis proposing to invest up to INR4,000 crore ($795 million) through a preferential allotment of shares at a price of up to INR160 each.
The funds are intended to pay for the buyout of the assets from RHT Health Trust, working capital, and infrastructure upgrades.
If the deal goes through, Maybank says IHH could own up to around one-third of the enlarged share base of Fortis.
In a Friday report, Maybank analyst John Cheong says this could lift IHH’s FY18 EBITDA and earnings by 4.0% and 2.6%, based on Bloomberg consensus estimates.
In addition, the buyout of RHT Health Trust would lead to savings on fees paid. IHH’s management team has a notable track record of improving the operations of two previous acquisitions in India, by adopting a better operating model, restructuring debt and rebranding the hospitals.
However, net gearing will increase 11ppt to 14%.
Despite binding agreements with Manipal and TPG, more bids have come forward for Fortis. The third bidder is Fosun while KKR is said to be the fourth.
Cheong understands that ultimately, the vote of Fortis shareholders is still required and the competition is still open.
IHH has indicated in its letter that its transaction could provide a better option to Fortis shareholders vs the more complex structure offered by Manipal and TPG, involving share swap and acquisition of a private diagnostic company, which could take longer to complete.
After the board meeting on Thursday, Fortis has set up an advisory committee to review all the bids.
"Maintain 'buy' and SOTP based target price of MYR7.00 ($2.36)," says Maybank.
Shares in IHH are trading at $2.04 or 54.5 times FY18 core earnings.
