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Afrox / Ahealth - Acquisition By Afrox

Release Date: 30/11/2004 15:02:02      Code(s): AFX AHH
Afrox / Ahealth - Acquisition by Afrox                                          
African Oxygen Limited                  Business Venture Investments No. 790    
(Incorporated in the Republic of South  (Proprietary) Limited                   
Africa)                                 (Incorporated in the Republic of South  
(Registration number 1927/000089/06)    Africa)                                 
JSE Share code: AFX                     (Registration number: 2003/002733/07)   
NSX Share code: AOX                     ("Bidco")                               
ISIN: ZAE000030920                                                             
("Afrox")                                                                       
Afrox Healthcare Limited                                                        
(Incorporated in the Republic of                                                
South Africa)                                                                   
(Registration number: 1985/001313/06)                                           
Share code: AHH                                                                 
ISIN: ZAE000022059                                                              
("Ahealth")                                                                     
ANNOUNCEMENT ON THE ACQUISITION BY AFROX OF 25% OF THE SHARES IN BIDCO FROM MEDI
                           CLINIC CORPORATION LIMITED                           
                                       AND                                      
JOINT ANNOUNCEMENT BY AFROX, AHEALTH AND BIDCO ON THE EXTENSION TO THE DATE FOR
                     THE FULFILLMENT OF CONDITIONS PRECEDENT                    
INTRODUCTION                                                                    
Afrox, Ahealth and Bidco entered into a Merger and Co-Operation Agreement on  14
November 2003 ("the Merger Agreement").                                         
Bidco  proposed a Scheme of Arrangement in terms of section 311 of the Companies
Act,  61  of  1973,  as  amended, between Ahealth and its shareholders  for  the
acquisition  by  Bidco  of  all of the issued share  capital  of  Ahealth  ("the
Shareholder  Scheme").  The Shareholder Scheme has been sanctioned by  the  High
Court  of  South Africa but is still subject to the fulfillment of the condition
that  the approval required from the Competition Tribunal for the implementation
of the Shareholder Scheme is obtained ("the Competition Condition").            
Bidco also proposed a Scheme of Arrangement in terms of section 311 of the      
Companies Act, 61 of 1973, as amended, between Ahealth and the participants in  
the Ahealth Share Option Scheme (the "Scheme Participants") in terms of which   
options held by employees over Ahealth shares will be cancelled against payment 
of the scheme consideration to the Scheme Participants ("the Employee Scheme"). 
The Employee Scheme has been sanctioned by the High Court of South Africa but is
still subject to the fulfillment of the condition that the Shareholder Scheme   
has become unconditional (the "Shareholder Scheme Condition").                  
Shareholders  were  advised in an announcement on 30  September  2004  that  the
Merger  Agreement and the date for fulfillment of the Competition Condition  and
the Shareholder Scheme Condition had been extended to 31 December 2004.         
In terms of the Shareholder Scheme, the cash consideration to be received by all
Ahealth shareholders is to be escalated at an effective rate of 5.6% per annum  
from 1 October 2003, being the effective date, to the operative date of the     
Shareholder Scheme. For illustrative purposes, assuming the scheme operative    
date is 1 March 2005, the total consideration payable per Ahealth share ("Offer 
consideration") is as follows:                                                  
Cash consideration                                   R13.85                     
Escalation  at an effective  rate                     R1.10                     
of 5.6% per annum                                                               
Offer consideration                                  R14.95                     
Shareholders  are now advised that for purposes of facilitating  this  important
black  economic  empowerment transaction in the South African  private  hospital
industry,  Afrox, Bidco, Brimstone Investment Corporation Limited ("Brimstone"),
Mvelaphanda   Strategic   Investments  (Proprietary)  Limited   ("Mvelaphanda"),
Business Venture Investments No 813 (Proprietary) Limited ("BeeCo"), Medi-Clinic
Corporation   Limited  ("Medi-Clinic")  and  Medi-Clinic  Limited  ("Medi-Clinic
Limited")  have  entered  into  a  Restructuring Agreement  ("the  Restructuring
Agreement")  and  Afrox,  Ahealth  and Bidco  have  entered  into  an  Extension
Agreement ("the Extension Agreement") in terms of which, inter alia:            
     Afrox has acquired 25% of the ordinary shares in Bidco from Medi-Clinic;   
     and                                                                        
any agreements or arrangements in terms of which Medi-Clinic might have    
     acquired and clinics from Ahealth subsequent to the implementation of the  
     Shareholder Scheme have been cancelled, with effect from the signature date
     of the Restructuring Agreement.                                            
the Shareholder Scheme shall not proceed after 23 January 2005 with Medi-  
     Clinic continuing to fund the transaction; and                             
     the Merger Agreement and date for fulfillment of the Competition Condition 
     and the Shareholder Scheme Condition has been extended to 23 January 2005. 
RATIONALE                                                                       
Afrox"s original decision to dispose of its shareholding in Ahealth was based on
the fact that Afrox had derived substantial growth from Ahealth and that Afrox  
believed that the healthcare business had attained the requisite scale and level
of sophistication such that operating as an autonomous empowered entity would   
enable it to pursue its own growth initiatives without restriction.             
The original concept of a Black Economic Empowerment deal remains valid and has 
been reinforced by subsequent events, in particular by the current developments 
on a charter for the healthcare industry. Afrox continues to believe that a     
transaction that provides Ahealth with a BEE partner is a strategic imperative  
in remaining competitive and positioning Ahealth to pursue new investment       
opportunities in the healthcare sector, locally and internationally. In the     
context of the evolving South African national healthcare system, an empowered  
Ahealth will be ideally positioned for sustained growth and profitability.      
Afrox, Ahealth and Bidco have encountered unforeseen opposition in seeking to   
obtain the required approval from the Competition Tribunal and this has led to  
the process taking longer than originally envisaged.  Subsequent to ongoing and 
in-depth discussions between Medi-Clinic, the BEE Companies, Mvelaphanda and    
Brimstone and Afrox, it became apparent that Afrox could invest in Bidco to     
expedite and support the conclusion of the transaction.                         
The delay in obtaining the approval of the Competition Tribunal has caused, and 
continues to cause, concerns on the part of the Ahealth shareholders and the    
Afrox shareholders, as well as the supporting doctors within Ahealth and the    
Ahealth staff.  The parties believe that the completion of the transaction needs
to be expedited and the existing Ahealth business protected from any further    
uncertainty and delay.                                                          
In order to facilitate this important black economic empowerment transaction in 
the South African private hospital industry, Medi-Clinic proposed that it       
terminate its involvement with Bidco on all levels and consequently has agreed  
to terminate its involvement as a shareholder of Bidco, potential creditor of   
Bidco and to terminate any agreement with Bidco regarding the disposal to it of 
any Ahealth hospitals.                                                          
However:                                                                        
ABSA Bank Limited ("ABSA") has issued guarantees:                               
in respect of the consideration payable under the Shareholder Scheme; and       
in respect of the consideration payable under the Employee Scheme,              
(together "the ABSA Guarantees")                                      
Medi-Clinic and its subsidiary Medi-Clinic Limited, have issued unlimited       
guarantees in favor of ABSA in terms of which Medi-Clinic guarantees the full   
payment when due of all obligations and liabilities of any nature whatsoever    
payable by Bidco to ABSA in terms of or arising from facilities, including the  
ABSA Guarantees granted by ABSA to Bidco to enable it to acquire up to 100% of  
the issued shares in the capital of Ahealth ("the Recourse Undertakings").      
Medi-Clinic required that that these Recourse Undertakings be replaced with     
permanent funding for the transaction and in any event that the Recourse        
Undertakings be cancelled on or before 23 January 2005.  As a result, third     
party funding for Bidco must be raised by 23 January 2005.  The process by Bidco
to raise permanent funding is progressing and is being accelerated with the co- 
operation of all parties.  To this end, the parties have been engaged in        
discussion with several financial institutions. If the Recourse Undertakings are
not replaced by 23 January 2005, the Shareholder Scheme will lapse.             
The Board of Directors of Afrox believes that the changes effected to the       
transaction in terms of the Restructuring Agreement, as discussed above,        
significantly enhance the chances that the Competition Condition will be        
fulfilled.  Afrox has therefore agreed to acquire from Medi-Clinic all of the   
ordinary shares in Bidco currently held by Medi-Clinic, being 25% of the        
ordinary issued shares and to subscribe for further shares in Bidco on the      
operative date of the Shareholder Scheme.                                       
The acquisition and subscription by Afrox for Bidco shares will be funded from  
existing resources and not out of the proceeds of the sale of Afrox"s shares in 
Ahealth, which proceeds will be distributed, after deduction of all expenses, to
the Afrox shareholders.                                                         
As announced to shareholders on 14 October 2004, a court application has been   
brought in the High Court of South Africa by two shareholders in Ahealth (and   
two further shareholders of Ahealth have since applied to participate in that   
application) to have the Shareholder Scheme declared to have lapsed as a result 
of the non-fulfillment, on or before 30 September 2004, of the Competition      
Condition. This application, which is being opposed by Afrox, Ahealth and Bidco,
is due to be heard on 2 December 2004. The parties hope that, as it is intended 
that the restructured arrangements will lead to an expedited transaction, the   
applicants will consider the withdrawal of the application following the        
announcement of the revisions to the transaction and allow the transaction the  
opportunity to proceed to a speedy conclusion.                                  
Ahealth has a long and proud record of working with its supporting doctors as   
partners. Ahealth"s intention has always been to find ways for doctors to       
meaningfully participate in the shareholding of Bidco, the details of which are 
still to be explored, and Bidco is similarly committed to explore this concept  
post the operative date, within the framework of the Health Professions Council 
of South Africa requirements.                                                   
TERMS AND CONDITIONS OF THE RESTRUCTURING AGREEMENT                             
Afrox will acquire from Medi-Clinic 25 ordinary shares of R1.00 each in the     
issued share capital of Bidco for a purchase consideration of R25.  The         
resultant shareholding structure of Bidco will be as follows:  Afrox will hold  
25% of the issued ordinary shares of Bidco; Mvelaphanda and Brimstone will      
together, directly or indirectly, hold 75% of the ordinary issued shares of     
Bidco.  It is anticipated that these shareholdings will be adjusted to          
facilitate the funding of the proposed transaction and one or more financial    
institutions involved in the funding may take a shareholding in Bidco upon      
implementation of the transaction. It is intended that after implementation of  
the Shareholder Scheme, a number of broad-based black economic doctor groupings 
will be invited to participate, directly or indirectly, in Ahealth.  Ahealth    
management are also expected to acquire an interest in Ahealth.                 
On the operative date of the Shareholder Scheme, Afrox will subscribe for       
further shares in, and advance loans to, Bidco in an amount of approximately    
R375, 000, 000 in the aggregate.                                                
Appropriate warranties from Medi-Clinic, Bidco and the Bidco shareholders have  
been given to Afrox in respect of the shares to be purchased and subscribed for.
The Shareholders" Agreement between Brimstone, Mvelaphanda, Medi-Clinic, BeeCo  
and Bidco has been terminated and replaced by a new shareholders" agreement     
between Afrox, Brimstone, Mvelaphanda, BeeCo and Bidco.  This new Shareholders" 
Agreement contains certain exit mechanisms for Afrox after a period of two      
years.                                                                          
Any agreements in terms of which Medi-Clinic might have acquired hospitals and  
clinics from Ahealth, including the Disposal and Co-operation Agreement between 
the Bidco, Medi-Clinic, Brimstone and Mvelaphanda entered into on 14 November   
2004 and any amendment, variation or restatement of it ("the Disposal           
Agreement"), have been terminated with effect from the signature date of the    
Restructuring Agreement.                                                        
The parties to the Restructuring Agreement have agreed that they will not,      
except with the prior written consent of the other parties to the Restructuring 
Agreement:                                                                      
     take any approval of the Competition Tribunal to the transaction, or any of
the terms and/or conditions of any such approval of the Competition        
     Tribunal, on appeal, or apply for leave to appeal against or any such      
     approval or condition, either to the Competition Appeal Court, the High    
     Court, the Constitutional Court or any other court, body or tribunal having
jurisdiction; and                                                          
     take any approval of the Competition Tribunal to the transaction, or any of
     the terms and/or conditions of any such approval of the Competition        
     Tribunal, on review, or apply for leave to take any such condition or      
approval or review, either to the Competition Appeal Court, the High Court,
     the Constitutional Court or any other court, body or tribunal having       
     jurisdiction.                                                              
     Bidco has refunded to Medi-Clinic all of Medi-Clinic"s transaction costs to
date in connection with the transaction.                                   
If the operative date of the Shareholder Scheme occurs, Bidco shall pay to Medi-
Clinic an amount of R50, 000, 000 in consideration of Medi-Clinic"s agreement to
the cancellation of the existing shareholders" agreement referred to above and  
the cancellation of the Disposal Agreement.                                     
The Parties have agreed that none of them shall take any steps for the purposes 
of procuring or arranging that the Competition Tribunal recommences the hearings
into the transaction prior to 24 January 2005.                                  
The date for fulfillment of the Competition Condition shall be extended, as more
fully discussed below.                                                          
EXTENSION OF THE DATE FOR FULFILLMENT OF THE CONDITIONS PRECEDENT               
The Shareholder Scheme is subject to the fulfilment of the Competition          
Condition. If the approvals are obtained subject to any conditions, Afrox is    
entitled to waive the requirement that any approval be obtained on an           
unconditional basis.                                                            
The Employee Scheme is subject to the fulfillment of the Shareholder Scheme     
Condition.                                                                      
Shareholders were advised in an announcement on 30 September 2004 that the      
Merger Agreement and the date for fulfillment of the Competition Condition and  
the Shareholder Scheme Condition had been extended to 31 December 2004.         
Shareholders are now advised that Afrox, Ahealth and Bidco have agreed to       
further extend the Merger Agreement and the date for fulfillment of the         
Competition Condition in the Shareholder Scheme and of the Shareholder Scheme   
Condition in the Employee Scheme to 23 January 2005.  It was announced on 10    
September 2004 that the Competition Tribunal hearings are scheduled to resume on
24 January 2005.                                                                
Shareholders are further advised that Afrox, Ahealth and Bidco have agreed that 
if, on or before 23 January 2005:                                               
ABSA Bank Limited has consented, for the purposes of the ABSA Guarantees,  
     in writing to the extension of the date of 23 January 2005, referred to    
     above, to 31 March 2005; and                                               
     Medi-Clinic and Medi-Clinic Limited have been unconditionally released, in 
writing, by ABSA from all of their obligations under the Recourse          
     Undertakings,                                                              
     then, the Merger Agreement and the date for fulfillment of the Competition 
     Condition and the Shareholder Scheme Condition shall be extended to 31     
March 2005.                                                                
The Recourse Undertakings will remain in place until such time as they are      
replaced by permanent funding for the transaction to be raised by Bidco.  The   
process by Bidco to raise permanent funding is progressing and is being         
accelerated with the co-operation of all parties.  To this end, the parties have
been engaged in discussion with several financial institutions.  If the Recourse
Undertakings are not replaced by 23 January 2005, the Shareholder Scheme will   
lapse, unless a further extension is agreed. In connection with this, the       
parties have undertaken to ensure that the Competition Tribunal hearings do not 
recommence prior to 24 January 2005.                                            
The Board of Directors of Afrox believe that a deadline of 23 January 2005 sets 
clear parameters within which the final funding arrangements of Bidco must be in
place and encourages a speedy conclusion to the transaction.                    
DESCRIPTION OF THE AHEALTH BUSINESS                                             
Ahealth is a private healthcare service provider listed on the JSE Securities   
Exchange.  Ahealth was formed in 1999 through the merging and reverse listing of
the healthcare operations of Afrox into President Medical   Investments Limited,
subsequently re-named Afrox Healthcare Limited. Operations consist of private   
hospitals and healthcare services.  The hospital division forms the bulk of     
Ahealth"s business and comprises interests in 63 hospitals throughout South     
Africa, of which 9 are associate hospitals, as well as one hospital in Gaborone,
Botswana.  The hospital division also includes Afrox Rehabilitation, which      
specialises in acute, outcomes-driven physical and cognitive rehabilitation for 
patients disabled by traumatic brain or spinal injury, stroke or other disabling
conditions.  The healthcare services division includes Lifecare Special Health, 
a public-private-partnership with the government, which has 21 chronic care     
hospitals and two acute-care hospitals; Direct Medicines, a pharmaceutical      
benefit management company and Afrox Occupational Healthcare, a leading provider
of contracted on-site healthcare to corporate entities.                         
In addition to the hospital and healthcare services, Afrox Healthcare offers the
following ancillary services: Afrox College of Nursing and ER24, a national     
emergency service network.                                                      
Afrox Healthcare published its financial results for the year to 30 September   
2004 with revenue of R4.9 billion (up 10% from 2003), operating profit before   
finance costs of R664.8 million (up 16% from 2003), headline earnings per share 
of 156.4 cents (up 13% from 2003) and cash generated from operations of R974.4  
million (up 33% from 2003).                                                     
FINANCIAL EFFECTS ON AFROX                                                      
The table below illustrates the financial effects of the Restructuring Agreement
on the Afrox shareholders based on the financial results of Ahealth and Afrox   
for the year ended 30 September 2004.  The unaudited pro forma financial effects
have been prepared for illustrative purposes only to provide information on the 
impact of the substitution agreement on an Afrox shareholder. Due to the nature 
of the unaudited pro forma financial effects, it may not give a fair reflection 
of the impact on an Afrox shareholder"s financial position following            
implementation of the Restructuring Agreement, nor the effect on their future   
earnings. Financial effects are determined in accordance with the JSE Securities
Exchange Listings Requirements.                                                 
Amounts    Before    Post the   % Change Post       % Change               
     in cents   the       disposal   compared investmen  compared               
     per share  disposal  of         to pre-  t in       to pre-                
                of        Ahealth2   disposal Bidco8     disposal               
Ahealth1  ,5,6                                                  
     Net asset  789       1,075      36.2%    1,075      36.2%                  
     value3                                                                     
     Net        739       1,072      45.0%    1,072      45.0%                  
tangible                                                                   
     asset                                                                      
     value3                                                                     
     Basic      182       563        210.2%   572        214.7%                 
earnings4                                                                  
     Headline   187       147        (21.8%)  155        (17.5%)                
     earnings4                                                                  
     ,7                                                                         
Number of  342,853   342,853             342,853                           
     shares in                                                                  
     issue                                                                      
     (000"s)                                                                    
Weighted   342,853   342,853             342,853                           
     average                                                                    
     number of                                                                  
     shares in                                                                  
issue                                                                      
     (`000)                                                                     
     1.   Extracted from the published audited financial results of Afrox for th
       year ended 30 September 2004.                                            
2.   Pro forma financial effects after the disposal of Afrox"s interest in      
Ahealth and prior to the acquisition of 25% of Bidco                            
3.   In relation to the pro forma net asset value and net tangible asset value  
per share it is assumed that the operative date of the Shareholder Scheme was 30
September 2004 and that Afrox acquired its 25% interest in Bidco on the same    
date.                                                                           
4.   In relation to the pro forma basic earnings and headline earnings per share
it is assumed that the operative date of the Shareholder Scheme was 1 October   
2003 and that Afrox acquired its 25% interest in Bidco on the same date.        
5.   In relation to the pro forma basic earnings and headline earnings per share
it was assumed that the proceeds of the disposal of the 154,603,934 shares in   
Ahealth at R13.85 per share remains in cash and cash equivalents, earning       
interest on a weighted average pre-tax interest rate of 7.0%.                   
6.   In relation to the pro forma basic earnings and headline earnings per      
share, payment of transaction costs were taken into account and capital gains   
tax, payable on the profit on the disposal of Afrox"s interest in Ahealth, was  
calculated in terms of the Income Tax Act.                                      
7.   The profit on the disposal of Afrox"s interest in Ahealth is excluded in   
the calculation of headline earnings per share.                                 
8.   The unaudited pro forma financial effects of Afrox"s 25% investment in     
Bidco are based on the assumptions that                                         
       a.   Bidco had made an investment on 1 October 2003 of R3.3 billion (comp
          the basic share consideration, settlement of management options and tr
          costs) funded through an equity investment and shareholders" loans of 
billion and debt of R1.8 billion (average interest rate of 12.8%); and
b.   Afrox acquired its 25% interest in Bidco for R25 and subscribed for further
shares in, and advances loans (at an interest rate of 16%) to, Bidco in an      
amount of R375,000,000 in the aggregate.                                        
No  documentation  will  be  sent to either Afrox or  Ahealth  shareholders,  as
shareholder  approvals  are  not  required. For  Afrox  this  is  a  Category  3
transaction  in terms of the JSE rules, and for Ahealth this is an extension  of
an existing scheme of arrangement.                                              
Shareholders are advised that the joint cautionary announcement from  Afrox  and
Ahealth issued on 15 November 2004, has now been withdrawn.                     
Shareholders will be informed as to the fulfillment of the outstanding condition
precedent.                                                                      
Johannesburg                                                                    
30 November 2004                                                                
Financial Adviser to Afrox              Legal Adviser to Afrox                  
JPMorgan                                Bowman Gilfillan Inc                    
Financial Advisor to Bidco              Competition Law Adviser to Afrox and    
Rothschild                              Ahealth                                 
                                        Edward Nathan & Friedland (Pty) Ltd     
Sponsor to Afrox                                                                
Barnard Jacobs Mellet                   Legal Adviser to Bidco                  
Corporate Finance                       Hofmeyr Herbstein & Gihwala Inc         
Sponsor to Ahealth                                                              
Nedbank Capital                                                                 
Date: 30/11/2004 03:02:16 PM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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