Row may be brewing at apollo hospitals as ihh's acquisition spree irks reddys

1. Row May be Brewing at Apollo Hospitals as IHH's
Acquisition Spree Irks Reddys
Recent Buyouts by Southeast Asia's largest private health company
takes a toll on 10-year partnership between 2 companies

2. Contd..
A row may be brewing between the Prathap Reddy family, promoters of
India's largest hospital chain Apollo Hospitals, and Malaysia's IHH Healthcare,
its secondlargest shareholder with a 10.85% stake. Recent acquisitions in
India by IHH--Southeast Asia's largest private health company--have taken a
toll on the 10-year-old partnership, pitting them against each other in
several cities, including the Reddys' Hyderabad bastion.At the heart of the
dispute is IHH's new aggressive strategy that focuses on buying out
healthcare assets rather than being a silent minority partner, said people
closely following developments.
IHH has made two acquisitions in India this year--Continental Hospitals and
Global Hospitals--for about . 1,600 crore. The first is a Hydera` bad-based
super specialty facility and the second is a chain of such hospitals. With
footprints overlapping in multiple locations, the Reddys are irked at what
they feel is a breach of trust.

3. Contd..
However, both sides denied any differences in responses to ET, saying that
they shared a cordial relation ship. But multiple sources that ET spoke to
confirmed growing tensions and said they expect these to be resolved one
way or the other.
The Reddys are said to have expressed their displeasure more than once,
including communicating this to the IHH management soon after the
Continental purchase in March. Apollo Hospitals chairman Prathap C Reddy
himself reached out to Khazanah, the sovereign wealth fund of Malaysia and
IHH's largest shareholder, but was assured that the M&A strategy was not
meant to be competitive in nature.
By May 28, when the Apollo board was meeting to finalise its FY15 an nual
earnings, IHH had agreed in principle to buy Global from its private equity
owners. This was a much larger transaction than the preceding one and had
pan-India scope.

4. Contd..
Soon after the an nual results, the Reddys are said to have again spoken to
the IHH top brass, expressing greater disapproval. “He told them such
competition was unacceptable and may break the existing association. But
IHH's response was cold,“ said one of the people cited above.
IHH, which doesn't have a board seat in Apollo Hospitals, has a separate joint
venture with the Reddys in a profitable project in Kolkata, Apollo Gleneagles.
IHH has a majority in this venture. “The Reddys are happy to buy them out in
both the entities, but there is no right of first refusal between the two,“
added another person. “Further, we don't think IHH will sell those shares to
us.“
To be sure, the Reddy family is believed to be preparing a war chest for any
future buyback opportunities and is in negotiations with investors for
promoter financing.

5. Contd..
As per Thursday's closing price, the IHH stake in Apollo is valued at . 2,177.31
crore ($334.97 million), a ` nearly eightfold rise from the $44.23 million it
invested in 2005.
IHH and Apollo denied any souring of ties. “There are no conflicts between
the groups. We were aware of the Malaysian strategy. The noncompete
clause exists only in Bengal where both of us are JV partners,“ Apollo group
CFO Krishnan Akhileswaran told ET.
In response to a questionnaire, an Apollo spokesperson said: “We have a
good relationship with IHH both as shareholders of Apollo as well as JV
partners in Kolkata, where we bring strong local competencies to the JV .The
Indian market being a growth market is bound to attract both local and
global players and we should welcome more players like IHH as it would help
deepen the market for quality healthcare further.“

6. Contd..
IHH also denied any differences.“Our partnership remains strong.India
continues to be a key growth market for IHH,“ said Ramesh Krishnan, head of
Middle East and South Asia operations at Parkway.Khazanah acquired
Parkway Pantai of Singapore in 2008 and created new holding company IHH
Healthcare for the entire healthcare portfolio. It tasked the Parkway
management to run operations.
Investment banking sources close to the Malaysians say IHH may soon
launch a formal process to exit Apollo. Proceeds from this may be
redeployed in India to expand operations. Interestingly, the IHH management
had planned to cash out through secondary share sales at least twice, the
latest being in February, but Khazanah had vetoed the plan. The first attempt
was in 2013, when IHH management indicated that the investment in Apollo
didn't fit in with its long-term goals.

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