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AFRICAN OXYGEN LIMITED - DISPOSAL BY AFROX OF ITS 69% STAKE IN AFROX HEALTHCARE
LIMITED TO AN EMPOWERMENT CONSORTIUM
AFRICAN OXYGEN LIMITED
(Registration number 1927/000089/06)
(Incorporated in the Republic of South Africa)
("Afrox")
ISIN Code: ZAE000030920
JSE Share Code: AFX
DISPOSAL BY AFROX OF ITS 69% STAKE IN AFROX HEALTHCARE LIMITED TO AN EMPOWERMENT
CONSORTIUM
1. Introduction
Further to the cautionary announcements dated 14 July 2003, 25 August 2003
and 06 October 2003, JPMorgan is authorised to announce that the Board of
Directors of Afrox ("the Board") has reached agreement with Business
Venture Investments No 790 (Proprietary) Limited ("Bidco"), a consortium of
Black Economic Empowerment ("BEE") investors led by Brimstone Investment
Corporation Limited ("Brimstone") and Mvelaphanda Strategic Investments
(Proprietary) Limited ("Mvelaphanda") for the sale by Afrox of its entire
stake in Afrox Healthcare Limited ("Afrox Healthcare")("the Transaction").
Afrox Healthcare will become the first significant BEE owned and controlled
private hospital and healthcare group in South Africa. The Transaction
materially contributes to empowerment by increasing the spread of ownership
of assets amongst historically disadvantaged persons.
Implementation of the Transaction will result in an offer being made to the
minority shareholders of Afrox Healthcare in accordance with the rules of
the JSE Securities Exchange South Africa ("JSE") and the Securities
Regulation Panel ("SRP") to acquire their shares by way of a Scheme of
Arrangement ("the Scheme") at the same price as has been agreed for the
sale of Afrox"s holding, namely R13.85 per share, escalated at an effective
rate of 5.60% per annum from 01 October 2003 to the date of the Scheme
being implemented or the date on which the Alternative Sale (as defined
below) is concluded, being the operative date. Afrox Healthcare
shareholders recorded on the share register on 23 January 2004 will also be
entitled to retain the dividend of R0.40 declared for the year ended 30
September 2003. Further details of the terms and conditions of the
Transaction are set out below.
2. Rationale For The Transaction
Afrox has derived substantial growth from Afrox Healthcare and the Board
believes that the healthcare business has attained the requisite scale and
level of sophistication such that operating as an autonomous empowered
entity will enable it to pursue its own growth initiatives without
restriction.
The Board further believes that a deal which provides Afrox Healthcare with
a BEE partner is a significant advantage in remaining competitive and
positioned to pursue new investment opportunities in the healthcare sector,
locally and internationally.
The Transaction will allow Afrox, which is a subsidiary of The BOC Group
plc ("BOC") to concentrate on growing as a dedicated industrial gases
business in line with BOC"s global strategy; and this, taken together with
the advantages flowing to Afrox Healthcare has the potential to unlock
significant value for both Afrox and Afrox Healthcare.
3. Overview Of Afrox Healthcare
Afrox Healthcare is a private healthcare service provider listed on the
JSE. Afrox Healthcare 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 Afrox Healthcare"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 corporates.
In addition to the hospital and healthcare services, Afrox Healthcare has
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 September
2003 on 29 October 2003. They demonstrated another outstanding performance
with revenue of R4,475 million (up 15% from 2002), operating profit before
finance costs of R571 million (up 19% from 2002), headline earnings per
share of 138.2c (up 22% from 2002) and cash generated from operations of
R733 million (up 35% from 2002).
4. Overview of Bidco
Bidco has been incorporated solely for the purpose of acquiring the issued
share capital of Afrox Healthcare. A consortium of BEE investors, led by
Brimstone and Mvelaphanda will subscribe for approximately 75% of Bidco"s
equity. The BEE consortium includes nationally and regionally based doctor
and empowerment groupings ensuring broad based empowerment. Medi-Clinic
Corporation Limited ("Medi-Clinic"), a private hospital company listed on
the JSE, will subscribe for a minority non-controlling shareholding in
Bidco not exceeding 25%.
5. Structure And Terms Of The Transaction
The cash purchase consideration per Afrox Healthcare share is R13.85,
escalated at an effective rate of 5.60% per annum from 01 October 2003 to
the date of the Scheme being implemented or the date on which the
Alternative Sale (as defined below) is concluded, being the operative date.
For illustrative purposes, assuming the operative date is 30 April 2004,
the total amount payable per Afrox Healthcare share and its implied value
to Afrox is as follows:
Per share Rand
value million
value to
Afrox
Cash consideration R13.85 2,141
Escalation at an effective rate of 5.6% per annum R0.45 70
Offer consideration R14 30 2,211
Final dividend declared for the year ended 30 R0.40 62
September 2003 (1)
Composite amount R14.70 2,273
(1) Afrox Healthcare shareholders recorded on the share register on 23 January
2004 will be entitled to retain the dividend of R0.40 per share declared
for the year ended 30 September 2003.
Bidco is to acquire the shares in Afrox Healthcare by means of a Scheme
between Afrox Healthcare and the Afrox Healthcare shareholders in terms of
section 311 of the Companies Act. If the Scheme fails to take effect and
become operative, an alternative sale will take effect whereby Bidco will
purchase the Afrox Healthcare shares held by Afrox, followed by a mandatory
offer to minority shareholders ("the Alternative Sale").
6. Irrevocable
An irrevocable undertaking has been obtained from BOC Holdings, which hold
56% in Afrox, to vote in favour of the Transaction at a meeting of
shareholders of Afrox, which will be called to approve the Transaction.
7. Conditions Precedent
Assuming the Transaction is implemented by way of the Scheme, the
Transaction is subject to, amongst others, the fulfilment of the following
suspensive conditions:
* approval of the Transaction in terms of the Competition Act, 1998, by
31 July 2004 or such later date (being no later than 30 September
2004) to which Afrox has elected to extend;
* the obtaining of all necessary shareholder approvals;
* the approval of and consent to, in so far as may be necessary, the
appropriate documentation and agreements by the JSE and the SRP, and
the obtaining of all other regulatory approvals that may be required;
* that the Scheme is agreed to by a majority representing not less than
three-quarters of the votes exercisable by Afrox Healthcare
shareholders present at the Scheme meeting;
* that the Court sanctions the Scheme; and
* the operative date of the Scheme being on or before 31 May 2004 after
which the Alternative Sale will be implemented; provided that if the
only outstanding condition on 31 May 2004 is the approvals in terms of
the Competition Act, that date of 31 May 2004 will be extended to
31 July 2004.
Assuming the Alternative Sale, the Transaction is subject to, amongst
others, the fulfilment of the following suspensive conditions:
* approval for the Transaction in terms of the Competition Act, 1998, by
31 July 2004 or such later date as agreed between Afrox and Bidco; and
* the approvals, in so far as may be necessary, of the appropriate
documentation by the JSE, the SRP and other regulatory approvals that
may be required.
8. Financial Effects Of The Transaction On Afrox
The table below shows the per share effects of the sale of Afrox Healthcare
for the twelve months ended 30 September 2003. The pro forma financial
effects have been prepared for illustrative purposes only and, because of
its nature, may not fairly present Afrox"s financial position, changes in
equity, results of operations or cash flows at 30 September 2003, or the
effect on future earnings. Financial effects are determined in accordance
with the Listings Requirements of the JSE.
Historical After the %
Before (1) Transaction (2,5,6)
Change
Amounts in cents per share
Net asset value (3) 693.3 996.7 43.8%
Basic earnings (4) 165.1 446.4 170.4%
Headline earnings (7) 166.5 136.5 (18.0%)
Weighted average number
of shares in issue (`000) 335 767 335 767
Weighted average diluted
number of shares in issue (`000) 335 767 335 767
Number of shares in issue (`000) 342 853 342 853
Notes:
1. Extracted from the published financial results of Afrox for the year
ended 30 September 2003.
2. Pro forma financial effects after the transaction.
3. In relation to the pro forma net asset value per share it is assumed
that the transaction was effective 30 September 2003.
4. In relation to the pro forma earnings and headline earnings per share,
it is assumed that the transaction was effective on 1 October 2002.
5. The proceeds of 154 603 934 shares in Afrox Healthcare at R14.30 per
share remains in cash and cash equivalents, earning interest on a
weighted average after tax interest rate of 6.3%, after taking into
account the payment of transaction costs.
6. The capital gains tax was calculated using the market value of an
Afrox Healthcare share at 30 September 2001 of R8.20.
7. The profit on the disposal of Afrox Healthcare is excluded in the
calculation of headline earnings per share.
9. Application Of The Sale Proceeds Of The Transaction
The intention is for Afrox to distribute the net proceeds to shareholders.
Further details of this distribution will be made available in due course.
10. Withdrawal Of Cautionary Announcement
The cautionary announcement dated 06 October 2003 regarding the strategic
options of the relationship between Afrox and Afrox Healthcare is hereby
withdrawn.
11. Distribution Of Circular
A circular to Afrox shareholders, convening an Afrox general meeting to
approve this Transaction, will be posted to shareholders in due course.
This circular will be posted at the same time as the Afrox Healthcare
Scheme documentation, which will be done as soon as possible following the
opening of the courts in January 2004.
Johannesburg
17 November 2003
Financial Advisers to Afrox:
JPMorgan
Legal Advisers to Afrox:
Bowman-Gilfillan
Competition Law Advisers to Afrox:
Edward Nathan & Friedland
Transaction Sponsor:
JPMorgan
Sponsor to Afrox
Nedbank Corporate
Date: 17/11/2003 09:01:07 AM Supplied by www.sharenet.co.za
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