Face-off over health care

Peter Stein

The Wall Street Journal

The tale of rival Indian and Malaysian bidders for a Singapore-based health-care chain might be described as “same hospital bed, different dreams.”

A full-on bidding war for Parkway Holdings Ltd., a successful Singaporean provider of swanky, high-end hospital care, broke out last week when India’s Fortis Healthcare Ltd. announced an offer for the shares it doesn’t already own in Parkway that values the company at 4.32 billion Singaporean dollars (US$3.10 billion). Fortis’s bid of S$3.80 a share tops a partial takeover offer of S$3.78 a share from a unit of Malaysia’s sovereign-wealth fund aimed at securing majority control without having to buy the whole asset.

The two offers share one thing in common: a belief that rapidly growing demand for quality health services around Asia represents a unique business opportunity. But the offers from each of Parkway’s two biggest shareholders envision different players—one government-owned, another a private-sector industry leader—grabbing the consolidator’s position.

Malaysia’s interest in Parkway is clear. It holds 24.1% of Parkway outright through Khazanah Nasional Bhd., the state-owned investment fund, and owns 60% of a Malaysian Parkway affiliate. Parkway also generates 26% of its revenue in Malaysia, which is expected to be a key driver of its future growth, according to a Citi Investment Research report.

Moreover, Parkway offers tiny Singapore’s bigger, less developed neighbor a chance to leapfrog into a leading position in high-end health care, an industry the government has singled out for strategic growth. Malaysia already has used government funds in that effort: state-owned oil company Petroliam National Bhd., or Petronas, owns a luxury, “futuristically designed” (as the website puts it) 300-bed hospital in the country’s capital, Kuala Lumpur, built two years ago in part to promote medical tourism.

For Fortis, Parkway offers a chance to expand from its base in India across the region. One of India’s largest hospital groups, Fortis is run by billionaire brothers of the Singh family that founded drug maker Ranbaxy Laboratories Ltd. In an email, Fortis Chairman Malvinder Mohan Singh said a combination between Fortis and Parkway would create a “pan-Asian health-care platform” that stretches from the Gulf to Southeast Asia, with both China and India representing big opportunities.

Even more than industry rival Apollo Hospitals Enterprise Ltd., Fortis has made expansion a priority, tripling the number of hospital beds it manages in the last 18 months.

Fortis probably thought it already had what it wanted from Parkway. After buying private-equity firm TPG’s 23.9% stake in the Singapore company earlier this year, Fortis took control of a majority of the board seats. Khazanah’s partial offer has now forced the Indian company to stump up for the whole company, with the Singh family investing alongside Fortis to help fund the deal. And it is still possible Khazanah could come back with a rival offer that thwarts Fortis’s ambitions. Mr. Singh said that while he is constrained by Singapore takeover law as to what he say about how the situation with Fortis and Khazanzah might work out, he noted “we have great respect for Khazanah and are open to options that will unlock value for Parkway, and benefit all stakeholders.”

So far, Parkway’s shareholders are clear winners: its stock has surged 27% since the first bid, including a 7.3% jump Friday. So is TPG, which cashed out earlier in this drama by selling its stake to Fortis in March for US$686 million. The U.S. private-equity firm invested a total of US$358 million in Parkway through several acquisitions beginning in May 2005. According to a banker familiar with the deal, once dividends and borrowings are taken into account, TPG earned a threefold return on investment. Even as the promise of Asia’s penchant to spend on medical services attracts new investors, some earlier ones are harvesting the rewards.


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