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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
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