Tuesday, 3 August 2010

Battle for Parkway,Parkway’s long history with Malaysia,Cash-rich Fortis eyes acquisitions in Asia

Takeover battle for Parkway pits two different cultures

 How did Khazanah and Fortis get to this point?

“I’VE fired people for stealing as little as US$125,” Fortis Healthcare Ltd CEO Shivinder Mohan Singh once boasted to business magazine Forbes in an interview.

With a wealth of some US$3bil shared with his brother Malvinder Mohan Singh, the Singh brothers from India are widely known for their swagger as much as their insatiable appetite for deals and penchant to rattle the operational status quo in the companies they’ve gobbled up.

So, even a tamed imagination should be able to figure out what could have possibly led to the simmering tension between Fortis’ controlling shareholders Malav and Shivi Singh (as they are commonly known) and Malaysia’s relatively subdued Khazanah Nasional Bhd since the former’s emergence as a major shareholder in Singapore-listed Parkway Holdings Ltd – divergent weltanshauung or world view.

After months of tiptoeing around the rivalry, Khazanah, quite unlike itself, had outflanked the Singh duo who hurriedly reconstructed the board with four new additions, by launching a partial takeover for Parkway Holdings.

If successful, Khazanah will wrest control of South East Asia’s largest healthcare company with a market value of US$3.08bil. Will Fortis walk away or will it make a counter bid? If they do, will Khazanah bite?
More importantly – should other shareholders of Parkway hold out for a better offer?

The possibilities are aplenty but at this point, there is only one offer on the table. Everything else is meaningless chatter.
Just how badly do Malaysia’s Khazanah and India’s Fortis want Singapore-based Parkway? No doubt, executives from both the companies have spent long nights asking themselves exactly that. The question, however, really is – just how much should they want Parkway?

First a quick recap as it is easy to get lost in this maze of corporate one-upmanship:

·March 11: Bombay Stock Exchange-listed Fortis Healthcare acquires a 23.9% stake in Parkway for US$685.3mil or S$3.56 apiece.

·March 19: No time wasted in board revamp – Malvinder is made chairman, Shivinder becomes CEO and managing director while two other directors join the board.

· Between March 11 and May 24, Fortis ups its stake to 25.29% through a series of transactions, pipping Khazanah’s 24% stake

· May 27: Trading halt on Parkway shares.
Khazanah sets up wholly-owned Integrated Healthcare Holdings Sdn Bhd (IHH) which makes a voluntary conditional partial offer for Parkway shares at S$1.18bil (US$833mil) or S$3.78 per share cash. The offer price represents a 25% premium over the share price then. (Offer closes on Aug 10).

· May 31: Trading halt lifted. From the last traded price of S$3.02, Parkway’s shares surge 23% to S$3.71
· June 9: Fortis seemingly fires a salvo; it reveals plans to raise US$584mil and increase borrowing limit to US$1.3bil. Many read this as a signal that it is crafting a counter bid

· June 10: Parkway’s shares jumps to a high of S$3.87, surpassing Khazanah’s offer price on intense speculation of a competing bid. (It has since calmed down to levels close to Khazanah’s offer price)

· June 15: Malvinder shoots out a clarification that the fund raising exercises are “merely enabling resolutions” and that it was keeping its options open. The remarks fan further speculation.

· June 16: Singapore’s SIC steps in before the tussle degenerates into a protracted vicious cycle. The regulator gives Fortis until July 30 to make a counter bid.

Amid all the read-between-the-lines rhetoric, wild speculation and adrenaline rush that a corporate takeover battle emits, one thing stands out – a national irony.

Khazanah’s ties with Parkway began in 2005. In September 2005, much to the chagrin of many “upholders of national-interest”, Parkway acquired a 31% controlling stake in Pantai Holdings Bhd. While many in the investing fraternity viewed the news as positive for Pantai given Parkway’s established track record and expertise in managing hotels (for why else would Parkway be the takeover target of two mega corporations today?), the transaction found itself smack in the middle of a Malaysian political landmine. Critics bemoaned that Pantai, a national strategic asset with two medical concessions, ought to remain in the hands of locals.

Many months later in August 2006, in swooped Khazanah. Newly set-up Pantai Irama acquired Parkway’s stake in Pantai and took the latter private. Parkway ended up with 40% in Pantai Irama while the rest was controlled by Khazanah. In 2008, Khazanah acquired a 16% stake in Parkway, which it has since raised to 24%.

Can’t seem to have enough

Fast forward four years, today Khazanah and Fortis – two large foreign corporations – one a state investment arm with assets worth RM92bil (US$28bil) as at end-2009 and the other, India’s second largest hospital operator by market value of US$1.1bil – are competing for more than a slice of Parkway.

The issue this time is not that they can’t have a piece of Parkway, a healthcare group which derives over 60% of revenue from Singapore operations, but this – they just can’t seem to have enough.

Parkway’s main allure is its dominant domestic position and growing regional franchise in Malaysia, India, UAE, Brunei and China. It also owns a 35.4% stake in Parkway Life REIT, which invests in healthcare/healthcare related real estate assets.

In short, it possesses the sweet combination of high quality assets and strong growth prospects.
To launch a general offer, Fortis would need to cough up some US$2.3bil. No easy feat. There’s talk that Fortis has lined up India’s wealthiest person Mukesh Ambani of Reliance Industries to buy a stake in the former.

If this happens, Khazanah will find itself facing off with India’s giants.

Asia’s premium healthcare platform

If Khazanah were to emerge triumphant, the path would be clear, as per its own pitch to Parkway shareholders, for the creation of Asia’s premium regional healthcare platform via the consolidation of Parkway, Pantai, Apollo Hospitals Enterprise Ltd (Fortis’ archrival) and IMU Health Sdn Bhd.

To safeguard its interest, Fortis has two moves – come up with a bag full of money to stage a counter offer or thwart Khazanah’s bid and maintain status quo. Either one of these scenarios would see Fortis emerge victor (if its offer pulls through, that is) as it already has control of the company. Right? Not quite.

Khazanah’s final trump card could be Pantai Irama, which controls the Malaysian operations. Pantai Irama is governed by air-tight shareholder as well as operational and management agreements which, if push comes to shove, could be used to backfire on the Singh duo.

So, what’s the big deal, you ask? Malaysia is currently the jewel in Parkway’s blossoming overseas operations and major contributor to its revenue and operating profits.

Even Fortis should appreciate that there’s no point shooting oneself in the foot all in the name of expanding the group’s footprints in the region.

·Business editor Anita Gabriel thinks that in a race like this, sometimes the one who walks away may not necessarily be the loser as everything has a price. What’s yours?


Parkway’s long history with Malaysia


YOU could call it a home-coming of sorts. Parkway Holdings Ltd, which will likely fall into the hands of Khazanah Nasional Bhd, was founded back in the 1970s by Malaysians.

Then, individuals from the Tan family of IGB Corp and the Ang family of Petaling Garden had bid for the privatisation of land by the Singapore government.

A key member of the founding team was Tony Tan Choon Keat. Tony had identified the plot of land and won the bid. He then roped in the Ang family and together they built Parkway Parade, Singapore’s first shopping complex.

From there, Parkway sought to get into the private hospital business. It was an idea mooted by Tony, then the managing director of Parkway and nephew of Datuk Tan Chin Nam of IGB, who was then chairman of Parkway.

This led to the group acquiring Singapore’s Gleneagles Hospital Pte Ltd in 1987, followed by the Penang Medical Centre, which it renamed Gleneagles Medical Centre, Penang. In 1995, Parkway bought the Mount Elizabeth and Parkway East hospitals and became the largest private healthcare provider in Southeast Asia.

The Tan family eventually sold most of their holdings in Parkway in 1997, which was believed to have been the result of certain Singapore-based shareholders raising concerns over the profitability and lackadaisical share price of Parkway.

Tony remained in the driving seat for a while after that. He was the founding managing director of Parkway until 2000 and then as its deputy chairman until his retirement in 2005.

It is understood that DBS Land had then become a major shareholder.

Another shareholder who had sold their Parkway shares to DBS Land was Pantai Holdings. Indeed, Parkway and Pantai have had a long history of co-owning each other.

Pantai’s involvement in Parkway started in 1995. Then Pantai was under the control of the Berjaya Group. In December 1995, Vincent Tan along with Indonesian businessman Johannes Kotjo announced plans to acquire a 20% stake in Parkway.

Later Datuk Mokhzani Mahathir gained control of Pantai and through a series of corporate exercises, had sold off Pantai’s stake in Parkway to DBS.

Mokhzani subsequently sold out of Pantai, to Datuk Lim Tong Yong.

Then in September 2005, Parkway under the stewardship of US private equity fund, Newbridge Capital, had acquired 30% of Pantai, said to be Lim’s stake in Pantai.

(Newbridge subsequently morphed into TPG Capital, which incidentally is the party that sold its stake to India’s Fortis Healthcare that started the whole sage for the tussle for control over Parkway.)

Going back to Parkway’s entry into Pantai, soon after that deal, a political storm brewed in Malaysia as it was alleged that since Pantai’s subsidiaries held key Malaysian government concessions, the group should not fall into the hands of foreigners, in accordance with the terms of the concessions.

The issue was resolved by a cleverly structured deal between Khazanah and Parkway which jointly formed a vehicle to hold the Pantai stake.

The vehicle in turn was majority held by Khazanah. Pantai’s hospitals though would continue to be run by Parkway through management contracts. However, if Parkway had gone into the hands of Fortis, there was the possibility of problems surfacing with Parkway’s management contract of Pantai. Pantai, in which Parkway owns 40%, contributes under a third of Parkway’s earnings before interest tax depreciation and amortisation. But with Khazanah firmly in control of Parkway, analysts say the relationship between Parkway and Pantai can only grow stronger now.

Parkway was in fact started by Malaysian individuals in the 1970s and even had Tan Sri Vincent Tan and Pantai Holdings as substantial shareholders in the 1990s.

Parkway had then started as a property development company with the Tan family of IGB Corp and the Ang family of Petaling Garden very much in the driving seat.

Cash-rich Fortis eyes acquisitions in Asia

Malvinder Singh, Chairman of Fortis, speaks during a news  conference in New Delhi July 26, 2010. REUTERS/B Mathur

Thu Jul 29, 2010 11:13am IST
By Raju Gopalakrishnan and Saeed Azhar

SINGAPORE (Reuters) - Fortis Healthcare(FOHE.BO) is eyeing acquisitions of other healthcare companies in Asia after losing out in the bidding war for Singapore's Parkway Holdings(PARM.SI) but making a tidy profit, its chairman said.

Malvinder Singh, one of the two billionaire brothers who run the Indian company, said the group now has between $800-$900 million in cash and a well-established line of credit, which would be used for the acquisition of one or more assets.

"There's also family money, if need be," he said. "Money has never been an issue. It depends on the opportunity," Singh told Reuters in an interview on Thursday.

Singh refused to identify any targets or give a time frame, but said Singapore remained the pan-Asian hub for the sector.

"We have regrouped, discussed and decided what we need to do," he said. "There are a bunch of opportunities we have already identified which we will evaluate and engage with. We will look at partnerships, we look at alliances, we look at acquisitions. We will do all of that."

"We are here to stay, Singapore will remain the base," said Singh, who had moved to Singapore from New Delhi as chairman of Parkway.

Other healthcare firms based in Singapore include Raffles Medical, Pacific Health and Singapore Medical. Prominent companies regionally in the sector include Thailand's top listed hospital operator Bangkok Dusit Medical Services and second-ranked Bumrungrad Hospital.

"For the next five years, Asia is the story," Singh said. "Emerging markets, significant demand-supply gaps in terms of healthcare, opportunity for growth and its got some strong institutions which we can build upon and leverage and create a good business."


Earlier this week, Fortis agreed to sell its about 25 percent stake in Parkway bought just four months ago after Malaysian state investor Khazanah made a general offer of S$3.95 per share in response to Fortis' bid of S$3.80.

Fortis said it made a profit of S$116.7 million ($85 million) on the deal.

"At S$3.80 we were clear buyers, at S$3.95 we were sellers " Singh said. "The issue to me was what does that (price) mean for a Fortis shareholder? What does it mean in terms of return on investment, what does it mean in terms of opportunity cost for other opportunities?"

Malvinder, whose interests include golf, photography, travel and art, worked at American Express Bank and Merrill Lynch and joined family-founded Ranbaxy Laboratories as a management trainee in 1994.

Two years ago, Singh and his brother Shivinder sold their controlling stake in Ranbaxy to Japan's Daiichi Sankyo. They now have a combined fortune estimated at $3 billion.

"Today where we are, rather than Parkway being a vehicle, we will find a different vehicle," he said. "It could be more than one vehicle. The destination doesn't change."

(Editing by Muralikumar Anantharaman)
(For more business news on Reuters India click in.reuters.com

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