Apollo eyes Wockhardt Hospitals

India’s largest hospital chain, Apollo Hospitals, is interested in buying Wockhardt Hospitals provided it gets a majority stake, a top Apollo executive said. “We will not buy a minority stake in Wockhardt Hospitals. We will consider a majority stake and pay a correct price for it if offered,” said the executive, who requested not to be named. When contacted, an Apollo Hospitals spokeswoman declined to comment. At present, Delhi-based Fortis Healthcare is the front-runner to buy Wockhardt at a valuation of Rs 1,000 crore, as reported by ET on April 1. But latest media reports suggest that the talks are stuck over valuation differences. Meanwhile, a Wockhardt spokesman ruled out any plans to sell a majority stake in the hospital chain. The company is looking to sell a minority stake to an investor, he said, but denied any negotiations with Apollo or Fortis. “Such reports are malicious propaganda by rival firms,” he said. However, what kind of a choice the Khorakiwalas have in the matter depends on their ability to raise huge capital in some other fashion in order to meet their debt obligations this year. Their flagship company Wockhardt Pharma is saddled with Rs 3,400-crore debt. According to Crisil data, Wockhardt has to repay Rs 1,324 crore this calendar year. Wockhardt Hospitals’ negotiations with private equity (PE) players such as General Atlantic, Advent International, Blackstone and Carlyle over the past couple of months are also reported to have collapsed. Most of these PE firms had then valued the company at about $250-300 million (Rs 1,250-1,500 crore). About a year ago, Apollo held initial talks to buy Wockhardt Hospitals, the promoters had demanded a valuation of Rs 3,000 crore, the executive said. But negotiations did not move forward due to sharp differences over valuation and the Khorakiwalas’ reluctance to give up a controlling stake in the hospital business. PE major Apax Partners, a strategic investor in Apollo Hospitals, also had initial discussions to invest in Wockhardt Hospitals last year, but couldn’t strike a deal. If Apollo Hospitals joins the fray, it could make for an interesting contest. Apollo Hospitals, which raised $100 million from Apax Partners in 2007, is yet to utilise a part of the fund. Apollo Hospitals, which runs a chain of 43 hospitals, has been looking for an acquisition in overseas markets. It was close to buying a hospital chain in the UK in 2007, and is currently scouting for an acquisition in Malaysia. In India, it has not made any big acquisition. However, analysts believe Fortis heads the race for Wockhardt Hospitals. This is because of the financial muscle of Fortis promoters who have announced aggressive expansion plans in healthcare sector. Besides Wockhardt Hospitals is seen as a strategic fit for Fortis, given the complementary regional distribution of their hospitals.

Fortis likely to buy 74% of Wockhardt hospitals for Rs750 crores

Fortis Healthcare has emerged as the front-runner to acquire a substantial stake in the unlisted Wockhardt Hospitals, people familiar with the development said. Fortis' promoters have reached a broad agreement with Wockhardt's founder Habil Khorakiwala on a possible deal to acquire up to 74% in the hospital chain for close to Rs 750 crore, valuing the business at over Rs 1,000 crore, the people said. Wockhardt Hospitals is a 100% subsidiary of pharmaceutical company Wockhardt. Private equity firms General Atlantic and Advent were also in the race, but Fortis is close to clinching the deal, they added. Investment bankers said if the deal materialises, Fortis, which is run by Shivinder Singh — the younger brother of Ranbaxy's MD and CEO Malvinder Singh — is likely to invest Rs 400 crore in the first phase for a 40% equity holding, and plans to subsequently increase its stake. But a formal deal is yet to be sealed, with both parties in the process of ironing out differences, including those over branding the hospital chain. When contacted, a Wockhardt spokesperson refused comment. A Fortis Healthcare spokesperson said: "We are in the market. We cannot comment on market speculation or any individual deals." Bankers told ET that Fortis' promoters and Mr Khorakiwala had reached an agreement almost 10 days ago. One banker said Fortis is valuing the hospital chain at over Rs 1,000 crore, which is substantially lower than the proposed IPO valuation, arrived at almost 15 months ago. In February 2008, Wockhardt had sought to divest 24% for Rs 800 crore. The issue had to be withdrawn because of lack of demand. Since the time Fortis entered the fray, investment banking circles have been wary of 'control' issues. The group has, in the past, walked out of deals with other hospitals over differences on management rights. "A staggered deal could be a way out," said an analyst, who argued that selling some pharma assets and a strategic dilution in the hospital business was critical to Wockhardt's fiscal restructuring plans. On Monday, the Fortis scrip ended marginally lower at Rs 66 on the BSE in a weak market. Fortis currently manages 3,000 beds with a network of 26 hospitals, which it plans to increase to 40 by 2012. It will add 1,200 beds soon at new facilities in Vashi in Navi Mumbai, Shalimar Bagh in Delhi and Gurgaon. Industry analysts feel rising incomes and a demand for quality healthcare — with an efficient government-run health delivery system not in place — are fuelling the growth of hospital chains in India. The sector grows at an estimated 10% to 15 % a year. Wockhardt Hospitals, which runs 17 facilities, is planning more at Kolkata, Mumbai and Nashik, which will start functioning within a month. If the deal materialises, Fortis will obtain easy entry into Maharashtra, Bangalore and Kolkata. The deal will take its network strength to 43. Fortis Healthcare is in the process of raising Rs 1,000 crore through a rights issue. The company had said the money would be used to fund its greenfield projects and restructure the balance sheet, besides being utilised for other investments. Additionally, the company plans to raise money through issue of warrants, but the details are yet to be decided.