CVC revises offer to buy HealthCare promoter stake

Private equity fund CVC Capital has entered into an agreement with the promoter of Healthcare Global Enterprises (HGE) to buy out the latter and made a fresh enhanced open offer to its public shareholders on Thursday at Rs 130 a share. Following the announcement, shares of HGE jumped 5.4% to ₹120.

HGE informed local bourses regarding the offer it received from Aceso Company, Singapore, (along with Aceso Investment Holdings, CVC Capital Partners Asia V LP, CVC Capital Partners Investment Asia VL and CVC Capital Partners Asia V Associates LP).

HealthCare Global Enterprises (HCG) is a focused player in cancer & fertility treatment. Under the HCG brand, the company operates the largest private cancer care network with a pan-India presence.

HCG network consists of 25 pan-India cancer centres, including 21 comprehensive cancer centres, three freestanding diagnostic centres and one day care chemotherapy centre. The company’s fertility centres under the Milann brand are one of the leading brands in IVF in India, running eight centres across India. The company also operates four multi-specialty hospitals in Ahmedabad, Bhavnagar, Rajkot and Hubli.

HGE promoter Dr BS Ajaikumar has entered into an agreement to subscribe to 2.95 crore equity shares and 1.856 crore warrants of the company, in tranches, at Rs 130 a share, aggregating to Rs 625 crore.

Earlier, on May 7, CVC Capital had announced its plan to acquire about 36.48% stake in HGE through a preferential allotment of shares at Rs 100 a share and made an open offer to the public shareholders at the same price.

As per the revised mandatory open offer, JM Financial, manager to the issue, has made an offer to acquire up to 3.26 crore fully paid-up equity shares from the public shareholders, representing 26% of the expanded voting share capital, at Rs 130 a share, aggregating to Rs 423.97 crore.

The total shareholding of the acquirer in the target company, together with the equity shares and warrants to be so exercised will be 3.657 crore equity shares, constituting 29.16% of the target company’s expanded voting share capital.

The acquirer has also agreed not to exercise the balance 1.15 crore warrants until the expiry of 15 business days from the completion of the open offer.

Currently, HGE promoters hold 23.9% stake in the company. Institutions, both domestic and foreign, have heavy exposure to HGE.

Among the public, mutual funds hold 17.56% (Kotak Equity Opportunities 1.01%; Nippon India Pharma Fund 1.18%; Sundaram MF 8.68%; Tata MF 2.27%; and Franklin India Smaller Companies Fund 3.36%).

Foreign portfolio investors hold 25.05% stake in the company. Among them are International Finance Corporation with 4.91% stake.

V-Sciences Investments, a wholly-owned subsidiary of Temasek Life Sciences, holds 9.38% stake in the company.

While close to 9,500 small retail investors hold 3.71% stake in the company, 67 high networth individuals own 6.7% stake in HGE.

For the December quarter of FY20, HGE had posted a loss of Rs 4.27 crore on revenues of Rs 172.98 crore. For FY18-19, the company had reported a profit of Rs 7.25 crore and revenues of Rs 640.5 crore.

HCG operates one of the largest private cancer care networks in India with end-to-end solutions available under single corporate entity. This consisted of 21 comprehensive cancer centres that provide a single point destination for complete cancer care.

Most centres are on lease or rental basis with some in partnership with local doctors or hospitals. Owing to exclusive agreement with vendors, HCG procures equipment on a deferred payment basis

Cancer is one of the fastest growing lifestyle diseases in India. High incidences of cancer in India can be attributed to rapid industrialisation, ageing population, lifestyle and food habits etc.

However, due to aggressive expansion (seven centres in past 18 months), the company’s balance sheet has been leveraged significantly (D/E 1.4x and debt/EBITDA 5.9x in FY19)

In terms of value to shareholders, the stock has not given significant upside to shareholders considering the fact that the company has offered its shares at Rs 218 in March 2016.

Net net this offer does not look very attractive considering the present market price of Rs 120 wherein the success of this offer would depend on the actions from the larger institutional shareholders here.

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