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Netcare - Proposed transactions relating to the simplification of The Netcare

Release Date: 23/03/2006 17:20
Code(s): NTC
Wrap Text

Netcare - Proposed transactions relating to the simplification of The Netcare Netpartner cross shareholding structure, a conditional offer by Netcare to the shareholders of Netpartner and withdrawal of cautionary announcements Network Healthcare Holdings Limited Incorporated in the Republic of South Africa Registration number 1996/008242/06 JSE Code: NTC & ISIN: ZAE000011953 ("Netcare") Netpartner Investments Limited Incorporated in the Republic of South Africa Registration number 2003/014215/06 ("Netpartner") PROPOSED TRANSACTIONS RELATING TO THE SIMPLIFICATION OF THE NETCARE / NETPARTNER CROSS SHAREHOLDING STRUCTURE, A CONDITIONAL OFFER BY NETCARE TO THE SHAREHOLDERS OF NETPARTNER AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS 1. INTRODUCTION Further to the joint cautionary announcements dated 24 January 2006 and 7 March 2006, shareholders of both Netcare and Netpartner are advised of the following proposed transactions (the "proposed transactions"), which if implemented, will result in, inter alia: * the cross shareholding structure which currently exists between Netcare and Netpartner (the "Companies") being simplified; and * Netpartner facilitating the acquisition of medical scheme administration assets via one of Netpartner"s wholly-owned subsidiaries ("PurchaseCo") which, it is anticipated, will become a public company traded on the over the counter market. 2. RATIONALE Netcare"s stated strategy is the development of an integrated healthcare platform and to be the lowest cost provider of quality healthcare solutions. At the centre of this strategy is Netcare"s investment in hospital and primary care facilities as well as ancillary healthcare businesses. Netpartner was established as a healthcare investment holding company and a managed care company in October 2003. In order to assist Netpartner in achieving its objectives, the board of directors of Netpartner has elected to pursue the acquisition of medical scheme administration assets, including Medscheme Limited ("Medscheme") and Rowan Angel (Proprietary) Limited ("Rowan Angel"). The implementation of this strategy requires the simplification of the cross shareholding between the Companies. Netcare, as one of the founding members of Netpartner, has agreed to facilitate Netpartner"s achievement of these objectives and in so doing to unlock value for the Companies" shareholders going forward. Given the following factors, the boards of directors of the Companies have accordingly resolved that the existing cross shareholding between the Companies be simplified, thereby enabling each company to independently pursue its respective objectives: * Netpartner"s stated objective of acquiring medical scheme administration assets; * Netcare"s desire to remain strategically neutral from a service provider and funder point of view; and * industry developments and the regulatory challenges Netpartner would face in the pursuit of its stated objectives should the cross shareholding remain in place. The advantages of the proposed transactions to the Companies include: * removing any potential conflicts of interest between the Companies; * assisting each company to focus on its core business; * simplifying the financial and corporate structures of the Companies; * unlocking immediate value for the Companies" shareholders; * providing the Netpartner Group, in its new form as PurchaseCo, with a solid platform to enable it to develop more affordable healthcare products and solutions to bring better care to more people of South Africa; * enhancing the direct Black Economic Empowerment ("BEE") shareholding in Netcare and potentially in Netpartner; * allowing Netcare to effectively repurchase a significant percentage of its shares on terms that are earnings enhancing; and * enhancing future earnings per share of Netcare as a result of the targeted growth in earnings against a static cost of financing and the lower number of Netcare shares in issue. 3. THE PROPOSED TRANSACTIONS Subject to the fulfilment of the conditions precedent set out in paragraph below, the following interdependent transactions are proposed: 3.1 Specific share repurchase by Netcare In terms of section 85 of the Companies Act, No 61 of 1973, as amended, (the "Companies Act") Netcare will repurchase a portion of the Netcare shares currently held by certain Netcare subsidiaries as treasury shares (the "specific repurchase"). As a result of this specific repurchase 116 056 221 Netcare shares, which represent approximately 6.4% of Netcare"s issued share capital, will be cancelled as issued shares and restored to the status of authorised but unissued shares. The basis of implementing the specific repurchase is cash neutral for Netcare. 3.2 Subscription for shares in PurchaseCo by Netpartner Netpartner will procure third party funding of R470 million which it will apply to the subscription for shares in PurchaseCo, such that it can pursue its strategy of, amongst others, the acquisition of Medscheme and Rowan Angel through PurchaseCo. 3.3 Distribution in specie by Netpartner In terms of section 90 of the Companies Act, Netpartner will distribute all of the shares it holds in PurchaseCo to the Netpartner shareholders, including Netcare, by way of a distribution in specie as a capital reduction on a pro rata basis. As a result of the distribution in specie, Netcare will hold 46.3% of the PurchaseCo shares, subject to 3.5 below. Netpartner will list all of the PurchaseCo shares on the over the counter market in a similar manner as Netpartner shares currently trade. 3.4 Acquisition of Medscheme and Rowan Angel by PurchaseCo By agreement between Netpartner, PurchaseCo and the existing shareholders of Medscheme and Rowan Angel respectively, PurchaseCo will utilise part of the proceeds from its capitalisation, as set out in paragraph 3.2 above, to acquire the entire issued share capital of both Medscheme and Rowan Angel from their respective shareholders. 3.5 Sale by Netcare of its 46.3% shareholding in PurchaseCo shares to third parties Netcare is currently in negotiations with third parties which, if successful, will result in Netcare disposing of all or part of its 46.3% interest in PurchaseCo immediately after the distribution in specie referred to in paragraph 3.3 above. The board of directors of Netpartner will, in making a recommendation to its shareholders, take into account, inter alia, whether Netcare"s disposal of its 46.3% interest in PurchaseCo will trigger a mandatory offer to the remaining shareholders in PurchaseCo, whether the ultimate owner/s will be seeking a waiver of any such mandatory offer and whether Netcare will retain an interest in PurchaseCo. In conducting these negotiations the board of directors of Netcare is mindful of its responsibilities in terms of the Securities Regulation Code on Takeovers and Mergers ("SRP Code") as well as the Competition Act, No 89 of 1998, as amended, (the "Competition Act"). 3.6 Conditional offer to Netpartner shareholders and proposed scheme of arrangement Netcare has proposed an offer to Netpartner to acquire all the issued shares in Netpartner not already held by Netcare (the "scheme shares") post the distribution in specie set out in 3.3 above. The proposed offer, which will take the form of a scheme of arrangement in terms of section 311 of the Companies Act (the "scheme"), will be proposed by Netcare between Netpartner and its shareholders other than Netcare (the "scheme members"). It is proposed that the purchase price payable by Netcare for the scheme shares will be discharged by Netcare issuing 77 653 493 new Netcare ordinary shares to the scheme members in the ratio of one Netcare share for every four Netpartner shares held. In the event that the scheme is not proposed, or is not sanctioned by the High Court of South Africa (Witwatersrand Local Division) (the "Court") for any reason, Netcare will make a substitute offer to the shareholders of Netpartner on the same terms and conditions as those proposed for the scheme (the "substitute offer"). Netcare intends to invoke the provisions of section 440K of the Companies Act, should at least nine-tenths of shareholders of Netpartner (excluding the Netcare shareholding in Netpartner) accept the substitute offer. Professor M B Kistnasamy, a member of the board of directors of Netpartner has a conflict of interest due to him sitting on the boards of directors of both Netcare and Netpartner. Professor M B Kistnasamy has recused himself from all Netcare board deliberations in respect of the scheme or, if applicable, the substitute offer. The Companies have established independent sub-committees to consider the scheme or, if applicable, the substitute offer. In terms of the SRP Code, the scheme or, if applicable, the substitute offer constitutes an affected transaction and therefore requires the appointment of an appropriate external adviser ("independent adviser") to Netpartner to assist the board of directors of Netpartner in advising the shareholders of Netpartner as to the fairness and reasonableness of the scheme or, if applicable, the substitute offer. Related party transaction Netcare will be acquiring Netpartner shares in terms of the proposed scheme or, if applicable, the substitute offer from parties who, in terms of paragraph 10.1(b) of the JSE Limited (the "JSE") Listings Requirements are considered to be related parties to Netcare. Certain directors of Netcare, namely M I Sacks, R H Friedland, N Weltman, I M Davis, V Litlhakanyane and J A van Rooyen are also shareholders in Netpartner. Furthermore, P G Nelson and V L J Litlhakanyane hold options to acquire Netpartner shares. In addition, certain persons who were directors of Netcare within the 12 months preceding the proposed transactions, namely Dr R H Bush, Dr I Kadish and Dr J Shevel are shareholders in Netpartner (Dr J Shevel was the Chief Executive Officer of Netcare until his resignation in September 2005). A non-executive director of Netcare, Professor M B Kistnasamy, is a director of Netpartner and its Board Chairman. Where appropriate, he has recused himself from involvement in the negotiations pertaining to the proposed transactions. Various personnel employed by the Netcare Group are shareholders in Netpartner. In terms of the JSE Listings Requirements relating to related parties, Netcare is obliged to obtain a fair and reasonable opinion from an independent professional expert, to be appointed in due course, on the terms of the acquisition of the scheme shares or, if applicable, on the terms of the substitute offer. Netcare shareholders, other than the related parties and their associates, will be required to consider and pass an ordinary resolution regarding acquisition of the Netpartner ordinary shares to be acquired in terms of the scheme or, if applicable, the substitute offer. Netcare owns 80% of the issued share capital of Medicross Healthcare Group (Proprietary) Limited ("Medicross"). The balance of 20% of the issued share capital of Medicross is owned by Netpartner and will be acquired by Netcare on the implementation of the proposed transactions. Various shareholders, management and service-level agreements exist between Netcare, Netpartner and Medicross. These will be cancelled on implementation of the scheme or, if applicable, the substitute offer. 3.8 Creation and issue of preference shares by Netcare Netcare proposes creating and issuing, by way of a private placement to selected parties, non-redeemable, non-convertible, non-participating preference shares (the "preference shares") not exceeding R1 billion. Netcare may apply for the listing of the preference shares in the "Specialist Securities" - "Preference Shares" sector of the JSE lists. The proceeds of the issue of the preference shares, together with internal funds and other facilities, will be used to settle the funding referred to in paragraph 3.2 above and other third party debt in Netpartner. SHAREHOLDING STRUCTURE Shareholding structure before the proposed transactions Netcare currently holds 268 191 530 Netpartner shares representing 46.3% of the issued share capital of Netpartner and Netpartner in turn currently holds 340 354 743 Netcare shares representing 18.7% of the issued capital of Netcare. The current shareholding structure of the Companies setting out the cross shareholding before the proposed transactions is set out below: Netcare and Netpartner shareholding structure Please refer to press announcement 4.2 Shareholding structure after the proposed transactions Upon implementation of the proposed transactions, Netpartner will have become a wholly-owned subsidiary of Netcare and Netpartner"s interest in Netcare will be reflected as treasury shares. The resultant shareholding structure after the implementation of the proposed transactions and other ancillary transactions is set out below: Netcare shareholding structure Please refer to press announcement PurchaseCo shareholding structure Please refer to press announcement FINANCIAL EFFECTS 5.1 Effects of the proposed transactions on Netcare The table below sets out the pro forma financial effects of the proposed transactions on Netcare and have been reviewed by PKF Jhb Inc., acting as reporting accountants. The reviewed pro forma financial effects are presented for illustrative purposes only and because of their nature may not give a fair reflection of Netcare"s financial position or the results of its operations after the implementation of the proposed transactions. The pro forma financial effects are the responsibility of the Netcare directors. It has been assumed for purposes of the pro forma financial effects that the proposed transactions were implemented on 1 October 2004 for income statement purposes and 30 September 2005 for balance sheet purposes. "Before" the "After" the Change
proposed proposed (%) transactions transactions Earnings per 57.2 58.1 1.6 share (cents) Headline 60.3 62.4 3.5 earnings per share (cents) Net asset value 231.1 207.9 (10.0) 4 ("NAV") per share (cents) Net tangible 206.9 178.3 (13.8) 4 asset value ("TNAV") per share (cents) Notes: The "before" financial information has been extracted without adjustment from Netcare"s published financial results for the financial year ended 30 September 2005. The reviewed "after" calculations are based on the following assumptions: * 7 653 493 new Netcare shares were issued to acquire the scheme shares or, if applicable, the shares to be acquired in terms of the substitute offer; * net cash received from the disposal of Netcare"s 46.3% interest in PurchaseCo at estimated realisable market value was utilised to repay current borrowings at the average borrowing rate of 8.0% per annum (5.7% post - tax) (being Netcare"s average borrowing rate for the year ended 30 September 2005); * preference dividends of 7.0% (being 65% of the average prime rate of 10.8% for the year ended 30 September 2005) have been paid on the non-redeemable, non-convertible, non- participating preference shares issued for an amount of R1 billion; * the consolidation of Netpartner as a 100% held subsidiary of Netcare; * the cash received from the issue of preference shares amounting to R1 billion, together with internal funds and other facilities, was utilised to settle third party debt in Netpartner; * estimated costs relating to the evaluation, negotiation and implementation of the proposed transactions (including professional fees, publishing costs and statutory fees) of approximately R5 million; and * the tax effects related to the above. 3. The above financial effects have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice. In line with the Listings Requirements of the JSE, Netcare is formally adopting International Financial Reporting Standards ("IFRS") with effect from 1 October 2005. 4. The reduction in NAV and TNAV per share is largely due to the debit to equity arising from the effective repurchase of the Netcare shares held by Netpartner in terms of the proposed transactions. 5.2 Effects of the proposed transactions on a Netpartner shareholder The table below sets out the illustrative pro forma financial effects of the scheme or, if applicable, the substitute offer based on the historical and current market information of Netpartner and Netcare. The illustrative pro forma financial effects are presented for illustrative purposes only and because of their nature may not give a fair reflection of Netpartner"s financial position or the results of its operations after the proposed transactions. It has been assumed for purposes of the pro forma financial effects that the proposed transactions were implemented on 30 September 2005 for balance sheet purposes. "Before" "After" "After" "After" Change
1 share dividend in 0.25 1 share held (%) held in specie shares in Netpartner received of held in PurchaseCo PurchaseCo Netcare 4 and 0.25
shares (3) shares held in Netcare Net asset 195.1 81.2 204.8 286.0 46.6% value per share (cents) 1 Net tangible 194.1 81.2 204.8 286.0 47.3% asset value per share (cents) (1) Market value 205.0 81.2 204.8 286.0 39.5% of a Netpartner share on 23 January 2006 (cents) (trading day prior to publication of the cautionary) (2) Market value 250.0 81.2 204.8 286.0 14.4% of a Netpartner share on 22 March 2006 (cents) (trading day prior to publishing this announcement ) (2) Notes: The "before" financial information has been extracted without adjustment from Netpartner"s published financial results for the financial year ended 30 September 2005. The market value of a Netpartner share at 23 January 2006 and 22 March 2006 is the quoted closing price as per the over the counter market as provided by Barnard Jacobs Mellet Holdings Limited; The "after dividend in specie received of PurchaseCo shares" column represents the value of the distribution in specie received in PurchaseCo shares at net asset value; and The "after 0.25 shares held in Netcare" column is based on the 30 day volume weighted Netcare share price of R8.19 up to 22 March 2006. 6. CONDITIONS PRECEDENT 6.1 Each of the proposed transactions is conditional on each of the other proposed transactions becoming unconditional in accordance with its terms (save for any reference in such terms to the other proposed transactions becoming unconditional) and being fully implemented. Accordingly, should any of the proposed transactions not become unconditional and not be fully implemented, each of the other proposed transactions will fail to become unconditional. The scheme is conditional upon Netpartner receiving a positive fair and reasonable opinion from the independent adviser on the scheme and the board of directors of Netpartner recommending that the scheme members vote in favour of the scheme. 6.2 The specific share repurchase is conditional upon, inter alia, the following conditions precedent: * the requisite approvals being received from the JSE; * the approval of the special and ordinary resolutions required to authorise the specific repurchase by Netcare shareholders in general meeting; and * the registration of the special resolution by the Registrar of Companies. 6.3 The subscription for shares in PurchaseCo by Netpartner is conditional upon, inter alia, the following conditions precedent: * the obtaining of third party funding of R470 million; and * the passing of the ordinary resolutions required to authorise the funding and the subscription for shares in PurchaseCo by Netpartner shareholders in general meeting. 6.4 The acquisition of Medscheme by PurchaseCo is conditional upon, inter alia, the following conditions precedent: * the passing of the ordinary resolutions required to transfer Netpartner"s rights and obligations in respect of Medscheme to PurchaseCo by Netpartner shareholders in general meeting; * the obtaining of the consent of the existing shareholders of Medscheme to the transfer of Netpartner"s rights and obligations in respect of Medscheme to PurchaseCo; * the approval of the Competition Authorities as contemplated in the Competition Act, insofar as may be necessary; and * insofar as may be necessary, all other regulatory approvals or consents necessary for the implementation of the acquisition being obtained. 6.5 The acquisition of Rowan Angel by PurchaseCo is conditional upon, inter alia, the following conditions precedent: * the passing of the ordinary resolutions required to transfer Netpartner"s rights and obligations in respect of Rowan Angel to PurchaseCo by Netpartner shareholders in general meeting; * the obtaining of the consent of the existing shareholders of Rowan Angel to the transfer of Netpartner"s rights and obligations in respect of Rowan Angel to PurchaseCo; * the approval of the Competition Authorities as contemplated in the Competition Act, insofar as may be necessary; and * insofar as may be necessary, all other regulatory approvals or consents necessary for the implementation of the acquisition being obtained. 6.6 The distribution in specie by Netpartner is conditional upon, inter alia, the following conditions precedent: * the passing of the necessary resolutions by the shareholders of Netpartner in general meeting; * the registration of all necessary special resolutions by the Registrar of Companies; and * the listing of PurchaseCo shares on the over the counter market in a similar manner as the Netpartner shares currently trade. 6.7 The scheme to be proposed by Netcare in terms of which Netcare will acquire the scheme shares is conditional upon, inter alia, the following conditions precedent: * Netpartner proposing the scheme; * the approval in general meeting of a simple majority of the shareholders of Netcare other than the related parties and their associates; * the relevant number of Netcare shares being placed under the control of the board of directors of Netcare for the settlement of the scheme consideration; * the approval of the Competition Authorities as contemplated in the Competition Act, insofar as may be necessary; * the Court granting an order convening a meeting in terms of section 311 of the Companies Act (the "scheme meeting") of the scheme members at which scheme meeting the scheme members will consider and vote on the scheme; * the scheme being approved, with or without modification, by a majority representing not less than three-fourths (75%) of the votes held by the scheme members, either in person or by proxy, and voting at the scheme meeting; * the approval of the Securities Regulation Panel ("SRP"); * the Court granting an order sanctioning the scheme in terms of section 311 of the Companies Act and the Registrar of Companies registering such order; * the distribution in specie of PurchaseCo by Netpartner becoming unconditional; and * insofar as may be necessary, all other regulatory approvals or consents necessary for the implementation of the scheme being obtained, either unconditionally or subject to such conditions as are acceptable to both Netcare and Netpartner. 6.8 The substitute offer to be made by Netcare should the scheme not be proposed or not become operative for any reason is conditional upon, inter alia, the following conditions precedent: * the approval in general meeting of a simple majority of the shareholders of Netcare other than the related parties and their associates; * the relevant number of Netcare shares being placed under the control of the board of directors of Netcare for settlement of the substitute offer consideration; * insofar as may be necessary, the approval of the Competition Authorities as contemplated in the Competition Act; * the approval of the SRP; * the distribution in specie of PurchaseCo by Netpartner becoming unconditional; and * insofar as may be necessary, all other regulatory approvals or consents necessary for the implementation of the substitute offer being obtained, either conditionally or subject to such terms and conditions as are acceptable to the Companies. 6.9 The proposed creation and issue by way of private placing of the preference shares by Netcare for any reason, is conditional upon, inter alia: * the passing of the necessary special and ordinary resolutions by the shareholders of Netcare in general meeting; * the registration of the special resolutions by the Registrar of Companies; and * the successful private placement of the preference shares and JSE acceptance of the listing (should Netcare elect to list the preference shares). 7. APPOINTMENT OF INDEPENDENT EXPERT ADVISERS 7.1 The board of directors of Netcare is required to appoint an independent professional expert acceptable to the JSE to provide an independent opinion on the terms of the proposed transactions with the related parties of Netcare. 7.2 The board of directors of Netpartner is required to appoint an independent adviser acceptable to the SRP to advise the board on the proposed scheme or, if applicable, the substitute offer, by Netcare, in particular as to how it affects the minority shareholders of Netpartner. The substance of this advice will be made known to Netcare and Netpartner shareholders in the circulars referred to in paragraph 9 below. 8. GENERAL MEETINGS AND SCHEME MEETING 8.1 A general meeting of Netcare shareholders will be convened in order for Netcare shareholders to consider the resolutions required to implement the following proposed transactions: * the specific repurchase; * the acquisition of Netpartner shares in terms of the scheme from the scheme members who are related parties; * the granting of the authority to the Netcare Board to issue the required number of Netcare shares in settlement of the scheme or substitute offer consideration; * the creation of the preference shares; and * the granting of the authority to the Netcare Board to issue the preference shares and to apply to the JSE for a listing of the preference shares. 8.2 A general meeting of Netpartner shareholders will be convened to consider the resolutions required to implement the proposed transactions: * the subscription of shares in PurchaseCo by Netpartner; * the distribution in specie of Netpartner"s entire interest in PurchaseCo; * the acquisition by PurchaseCo of Medscheme; and * the acquisition by PurchaseCo of Rowan Angel. 8.3 The scheme meeting will be convened in terms of an Order of Court. 9. DOCUMENTATION Circulars to the shareholders of both Netcare and Netpartner, containing the full details of the proposed transactions, incorporating notices convening the general meetings and, if applicable, the scheme meeting, and forms of proxy, will be posted to the respective shareholders in due course. A further announcement will be made in due course containing, inter alia, further details of the scheme and the salient dates applicable to the proposed transactions. 10. WITHDRAWAL OF CAUTIONARY The joint cautionary announcements published on 24 January 2006 and renewed on 7 March 2006 are hereby withdrawn. 23 March 2006 Johannesburg KPMG Services (Proprietary) Limited Corporate Adviser to Netcare Nedbank Capital, division of Nedbank Limited Investment Bank, Corporate Adviser and Transactional Sponsor to Netpartner i capital advisers Corporate Adviser to Netpartner HR Levin Attorneys Legal Adviser to Netcare Cliffe Dekker Inc. Legal Adviser to Netpartner Merrill Lynch South Africa (Proprietary) Limited Lead sponsor to Netcare PKF Jhb Inc. Reporting Accountants to Netcare Date: 23/03/2006 05:21:09 PM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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