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Reports: TPG-Manipal consortium nears deal to gain control of Fortis Healthcare

A consortium led by private equity firm TPG Capital Advisors LLC is close to reaching a deal to acquire a controlling stake in Fortis Healthcare Ltd., India's second-largest hospital chain, Bloomberg News reported, citing people with knowledge of the matter.

The consortium also includes Indian healthcare operator Manipal Health Enterprises Pvt. Ltd., whose business would be merged with Fortis' operations, according to the sources.

Under the proposed agreement, which could be disclosed as soon as the next few days, Fortis may issue about 40 billion Indian rupees in new shares to TPG and Manipal via a preferential allotment, making the investor group Fortis' largest stakeholder, one of the insiders said.

The merged entity will seek to buy out other owners of medical diagnostics provider SRL Ltd., which Fortis partly owns, the sources added. The TPG-led consortium is in talks to acquire stakes in SRL from private equity investors who have an approximately 30% holding in the company, potentially valuing SRL at between 34 billion rupees and 40 billion rupees.

According to a report by The Economic Times of India, Fortis will spin off its hospitals portfolio into a separately listed entity that will be merged with Manipal Hospital. The TPG consortium will then acquire a 51% stake in SRL at an equity value of 36 billion rupees from existing private equity investors and Fortis.

TPG and Manipal could spend as much as 60 billion rupees to take over Fortis, one of the sources told Bloomberg. Fortis could use proceeds from the deal to finance its previously announced acquisition of RHT Health Trust assets and/or to repay debt. The multistep transaction could take nearly two years to complete.

The TPG consortium has tapped Kotak Mahindra Bank and is in talks with foreign lenders for financing, the newspaper reported, citing people familiar with the development.

India's Serious Fraud Investigation Office and the Securities and Exchange Board of India have launched probes into Fortis over allegations that founders Malvinder Singh and Shivinder Singh took at least 5 billion rupees out of the company without board approval. The TPG consortium is structuring the deal so that it would have the least exposure to any legal liabilities of Fortis, the sources noted.

The transaction will be conditional on obtaining approval from the Competition Commission of India, the insiders added.

Meanwhile, Malaysia's IHH Healthcare Bhd. is preparing a voluntary open offer to purchase a majority stake in Fortis from the open market, having tapped HSBC and Citi as advisers. Fortis CEO Bhavdeep Singh said March 1 that three to four parties have been interested in the company for a while.

As of March 23, US$1 was equivalent to 64.97 Indian rupees.