Fortis Healthcare has signed an agreement to demerge its hospitals business, Fortis Hospitals, into TPG-backed Manipal Hospitals, part of Manipal Education and Medical Group (MEMG).

Additionally, the company also agreed to divest a 20% stake in its diagnostics business, SRL to Manipal Hospitals.

Upon completion of merger, the surviving entity will operate under Manipal Hospitals. The remaining Fortis Healthcare will operate as an investment holding company with 36.6% stake in SRL.

The integrated Manipal Hospitals and Fortis Hospitals will emerge as the largest provider of healthcare services in India by revenue with 41 hospitals in the country and four hospitals overseas with nearly more than 11,000 installed bed capacity.

Under the terms of the proposed transaction, MEMG chairman Dr Ranjan Pai and TPG will invest INR39bn ($598.65m) into the hospital, which in turn will be used to finance the acquisition of 50.9% stake in SRL, including 20.0% from FHL and 30.9% from other investors.

The fund will also be spent to support the proposed takeover of hospital assets owned by RHT Health Trust and the growth of the hospitals and the diagnostics businesses.

MEMG chairman Ranjan Pai said: “The companies make a compelling strategic fit in terms of complementary geographies, clinical strengths as well as a shared commitment to providing outstanding patient care.

“As the largest hospital operator in India, this will be a platform benefiting all, from the communities we serve, to our capable employees and our investors.”

Besides shareholders’ approval and creditors’ approval, the transaction is pending receipt of regulatory approvals including Competition Commission of India, SEBI, stock exchanges and National Company Law Tribunal (NCLT) and other customary conditions precedent.