By Kevin Tan
Fri, 2 Jul 2010, 08:53:55 SGT

Fortis Healthcare (through its 49%-owned RHC Healthcare) yesterday announced that it plans to make a S$3.2b voluntary conditional cash offer to acquire all the shares in Parkway at S$3.80 apiece. The offer price values Parkway at S$4.3b, and represents a 6.4% premium to its last transacted price prior to the announcement; but it is just 0.5% more than Khazanah Nasional’s partial offer price of S$3.78. We believe the offer, which is strategically priced in our view, is likely an attempt to test market’s reaction (including Khazanah’s) and to quell fears that Fortis may overpay for Parkway investment. We expect Khazanah, which reserves the right to revise the terms of its partial offer into a GO, to act along this line (especially when Fortis’ offer is just a tad above Khazanah’s), thereby starting a bidding war. Hence, while Fortis’ offer, being a GO, is more attractive than Khazanah’s, we believe shareholders should hold off acting on the offer until nearer to its closing date. Should there still be inaction on Khazanah’s part, we then advise shareholders to accept the offer.

Counterbid by Fortis. In response to Securities Industry Council regarding its intention to launch a general offer (GO) on Parkway Holdings, Fortis Healthcare (through its 49%-owned RHC Healthcare) yesterday announced that it plans to make a S$3.2b voluntary conditional cash offer to acquire all the shares in Parkway at S$3.80 apiece. The offer price values Parkway at S$4.3b, and represents a 6.4% premium to its last transacted price prior to the announcement; but it is just 0.5% more than Khazanah Nasional’s partial offer price of S$3.78.

Rationale. According to Fortis, there are significant benefits from a deeper integration between itself and Parkway, such as leveraging on combined competitive strengths and achieving operational synergies between them. We note that Fortis intends to create an integrated pan-Asian healthcare services group with Parkway as the flagship vehicle, and is considering consolidating itself into Parkway.

Condition. The offer is only conditional upon Fortis receiving valid acceptances which will result in it to hold shares carrying more than 50% of the voting rights attributable to the issued shares in Parkway. As such, shareholders have the flexibility to realize their entire investments for cash or realize part of their investments and continue to participate in the future prospects in Parkway. We understand that Fortis currently holds a 25.3% stake in Parkway, as opposed to an estimated 24.1% held by Khazanah (and related parties). As it is unlikely that the latter would accept the offer, we estimate that Fortis would require around 50% of the remaining shareholders’ acceptances (excluding Fortis and Khazanah) for the deal to go through. While Fortis reserves its right to compulsorily acquire all Parkway shares when applicable, we also note that it intends to maintain the present listing status of the group.

Our take. We believe the offer, which is strategically priced in our view, is likely an attempt to test market’s reaction (including Khazanah’s) and to quell fears that Fortis may overpay for Parkway investment. We expect Khazanah, which reserves the right to revise the terms of its partial offer into a GO, to act along this line (especially when Fortis’ offer is just a tad above Khazanah’s), thereby starting a bidding war. Hence, while Fortis’ GO offer is more attractive than Khazanah’s, we believe shareholders should hold off acting on it until nearer to its closing date. Should there still be inaction on Khazanah’s part, we would then advise shareholders to accept the offer.