Wrap Text
LHG - Litha Healthcare Group Limited - Detailed terms announcement regarding
strategic partnership transaction and withdrawal of cautionary announcement
LITHA HEALTHCARE GROUP LIMITED
Incorporated in the Republic of South Africa
(Registration number 2006/006371/06)
Share code: LHG ISIN: ZAE000144671
("Litha" or "the Company" or "the Group")
DETAILED TERMS ANNOUNCEMENT REGARDING STRATEGIC PARTNERSHIP TRANSACTION AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Highlights
- Litha to acquire 100% of Pharmaplan Proprietary Limited ("Pharmaplan")
for R590 million through payment of cash and the issue of new Litha
shares.
- Pharmaplan is one of the fastest growing specialist pharmaceutical
companies in South Africa.
- Paladin Labs Inc. (Incorporated in Canada and listed on the Toronto Stock
Exchange) ("Paladin") to become a new strategic shareholder in Litha.
- The acquisition of Pharmaplan will now give Litha the appropriate scale
across all three divisions namely pharmaceuticals, vaccines and medical
devices.
- Following the acquisition, the Litha Pharma Division will become Litha`s
most profitable by earnings.
1. INTRODUCTION
Further to the cautionary announcement released on the Securities
Exchange News Service ("SENS") of the JSE Limited ("JSE") on 30 January
2012, Litha shareholders are advised that Litha and other parties have
entered into a number of indivisible transaction agreements, including
(i) a sale of shares and subscription agreement with Paladin in terms of
which Litha will purchase certain Pharmaplan shares from Paladin for cash
and Paladin will subscribe for new Litha shares, the subscription price
for which shall be discharged by the transfer of the balance of the
Pharmaplan shares held by Paladin to Litha; and (ii) a service agreement
with Gerardus Adrianus Hoogland ("Gert"), the current chief executive
officer of Pharmaplan, providing for, inter alia, Gert`s employment by
Litha, confidentiality and restraint undertakings which are customary for
agreements of this nature and wherein Gert will be granted the right to
acquire Litha shares in accordance with the terms and conditions of the
Litha Medical Share Incentive Scheme, which together with the other
transactions described in paragraph 2.1, shall be referred to as "the
Transaction".
2. THE TRANSACTION
2.1 TERMS OF THE TRANSACTION
In terms of transaction agreements entered into between Litha,
Paladin, Opus Ventures Limited ("Opus"), Gert, Pharmaplan, Blackstar
Group SE and Blackstar (Cyprus) Investors Limited (collectively "the
Blackstar Entities") (the "Transaction Agreements") -
2.1.1 Paladin will buy-out the remaining 55.01% of Pharmaplan from
Opus which it does not currently own and will accordingly
become the sole shareholder of Pharmaplan;
2.1.2 Paladin will purchase 72 989 078 Litha shares from the
Blackstar Entities, which represents half of the Blackstar
Entities` interest in Litha as at 21 February 2012, being the
date of the Transaction Agreements, for ZAR 200.72 million
(being ZAR 2.75 per Litha share) ("Blackstar Sale");
2.1.3 Litha will purchase certain Pharmaplan shares (constituting
21.185% of the entire issued ordinary share capital of
Pharmaplan) from Paladin for a total purchase price of ZAR 125
million, which will be payable in cash in Rands;
2.1.4 Paladin will subscribe for 169 090 909 Litha shares ("the
Subscription Shares"), for a total subscription price of ZAR
465 million (being ZAR 2.75 per Litha share), which will be
discharged by the delivery by Paladin to Litha of the balance
of the Pharmaplan shares held by Paladin. Paladin will
accordingly become the holder of 44,52% of all of the Litha
Shares following the subscription herein and the acquisition
referred to in paragraph 2.1.2 above and Pharmaplan will become
a wholly owned subsidiary of Litha. As such, Pharmaplan`s
Memorandum of Incorporation will in due course be amended to
conform to Schedule 10 of the JSE Listings Requirements;
2.1.5 Paladin has made certain representations and given certain
warranties and indemnities in relation to Pharmaplan (the
"Pharmaplan Warranties") and Litha has also made certain
representations and given certain warranties and indemnities in
relation to itself (the "Litha Warranties"). The Pharmaplan
Warranties and the Litha Warranties are both subject to
limitations of liability in respect of the value of claims and
time such that (i) neither Paladin nor Litha shall have any
claim which arises out of a separate breach of any of the
warranties if the amount for which they would be liable in
respect of the claim is ZAR 0.5 million or less; (ii) no amount
shall be payable by Paladin or Litha pursuant to any claim made
unless and until the aggregate of all amounts so payable is ZAR
1.5 million or more (iii); the maximum aggregate liability of
Paladin for all claims which may be made against it shall be
limited to ZAR 59 million in aggregate; (iv) the maximum
aggregate liability of Litha for all claims which may be made
against it shall be limited to ZAR 46.5 million in aggregate;
and (v) neither Litha nor Paladin may institute any proceedings
in respect of any claim for breach of warranty after the period
which shall expire eighteen months after the closing date of
the Transaction Agreements ("Closing Date");
2.1.6 Opus has bound itself to confidentiality and goodwill restraint
of trade undertakings which are customary for a transaction of
this nature;
2.1.7 Paladin will be entitled to nominate persons for election as
directors of Litha;
2.1.8 the Blackstar Entities will vote their Litha shares at any
general meeting of Litha shareholders, subsequent to the
implementation of the Transaction, including Litha`s annual
general meeting, as directed by Paladin so as to ensure that
Paladin acquires sole control of Litha;
2.1.9 Paladin will have the right to participate in any securities`
issue and subscribe for such number of Litha shares as are
required to enable it to maintain its voting entitlement in
Litha at not less than 50.1%; and
2.1.10 Subject to the conditions precedent in paragraph 3 below and
certain other conditions (including the necessary approvals
(statutory, regulatory or otherwise) required in South Africa,
Canada and/or any other applicable jurisdiction, for the
implementation of the Transaction Agreements and the offer by
Paladin to minorities being obtained), Paladin will make an
offer to the shareholders of Litha, registered as such on 21
February 2012, (other than the Blackstar Entities) to acquire
half of the shares they hold in Litha on 21 February 2012 for
cash at a price equal to ZAR2.75 (two rand seventy five cents)
per Litha share and thereby grant the Litha shareholders (other
than the Blackstar Entities) the ability to sell their Litha
shares should they wish to do so at the same price and on the
same terms and conditions as the Blackstar Sale referred to in
paragraph 2.1.2 above (the "Paladin Offer to Minorities").
The Transaction Agreements are indivisibly linked with one
another and will result in Paladin deploying an anticipated
CDN$48 million in cash and CDN$4 million via an issue of
Paladin shares and owning 44.52% of Litha (excluding any
additional Litha shares that may acquired by Paladin in terms
of the Paladin Offer to Minorities, which will result in the
percentage herein increasing to no more than 49,09%). Paladin
will accordingly become the Group`s single largest shareholder
upon closing. The deal values Pharmaplan at a total of ZAR 590
million and Litha at ZAR 2.75 per share.
In addition, Selwyn Kahanovitz, the current chief executive
officer of Litha, ("Selwyn") and his family trust, the family
trust of Martin Kahanovitz, the current chief financial officer
of Litha ("Martin") and Morena Makhoana, the current deputy
chief executive officer of Litha, have agreed that they shall
not dispose of or encumber certain of their Litha shares for a
period of 3 years after the closing date.
Selwyn and Martin have also agreed to bind themselves to
confidentiality and restraint undertakings in favour of Litha
which are similar in nature and scope to that which will be
embodied in the service agreement entered into between Gert and
Litha.
The anticipated effective date of the Transaction Agreements
(other than the acquisition envisaged in paragraph 2.1.1; which
shall be effective on the third Business Day following the date
on which the Conditions Precedent envisaged in paragraph 3 are
fulfilled) is 2 July 2012.
The board of directors of Litha accepts responsibility for the
information contained in this announcement, and to the best of
their respective knowledge and belief, the information is true
and, where appropriate, this announcement does not omit
anything likely to affect the importance of the information
included.
2.2 RATIONALE FOR THE TRANSACTION
The Transaction achieves Litha`s objectives of being a diversified
healthcare business and delivers on its stated strategy of creating
scale within its Pharma Division through acquisitions. With
significant presence already in the vaccine and medical device
markets, the acquisition of Pharmaplan will now give Litha the
appropriate scale across all three divisions namely pharmaceuticals,
vaccines and medical devices and in turn the Group as a whole. With
the acquisition of Pharmaplan, the Litha Pharma Division will become
Litha`s second largest division by revenue and most profitable by
earnings and is therefore expected to impact the Group`s
profitability positively.
The Transaction provides opportunities for all parties to the
Transaction. The merging of the two `entrepreneurial` styled
businesses will ensure a like-minded model for the integration and
continuation of the business culture. The merged group will also
look to synergise and solidify its business model in South Africa,
as well as continue developing its long term strategy to expand its
African footprint in the sub-Saharan African healthcare market.
Pharmaplan is one of the fastest growing specialist pharmaceutical
companies in South Africa, with an enviable market position in the
private specialist and niche generics markets. The merging of the
Litha Pharma division with Pharmaplan will not only boost current
product portfolio revenues, but will also broaden Litha`s access to
international R&D pipelines and improve their current platform for
expansion into new markets including biogenerics, oncology and
aesthetic medicine. Pharmaplan will also benefit from the additional
opportunities which the synergies across the Group`s business
operations will provide. Pharmaplan has been a registered importer
and distributor of niche speciality/biotechnology medicines since
1996, selling products from the US, Europe, India and New Zealand.
Pharmaplan deals with some of the top pharmaceutical companies in
their respective countries, drawing from their innovation and
expertise to register and market products in a range of therapeutic
areas which include oncology, dermatology, nephrology, paediatrics,
gynaecology, surgery, radiology, neurology, cardiology and
psychiatry. According to IMS data (Sales Moving Annual Total Sept
`11), Pharmaplan is ranked the 8th top generic company in South
Africa with a proven track record in the specialist prescription
medicine market and has had a 24.7% Compound Annual Gross Return
over the past four years which is double that of the South African
pharmaceutical market (12.9%) for the same period.
As a listed company on the Toronto Stock Exchange, Paladin intends
to play an active role in opening up international licencing
opportunities from a product pipeline and investment perspective
which it is envisaged will result in increased deal flow and future
product acquisition success rates for Litha. The Group will further
benefit from the business and industry expertise of the Paladin
executives who will join the Litha board of directors.
This represents the most significant strategic corporate expansion
initiative to date for both Litha and Paladin and is a decisive move
to build critical mass and competitive differentiation in the South
African pharmaceutical market. Pharmaplan will benefit from Litha`s
locally empowered business as well as experience in dealing with the
public healthcare sector through its vaccines business, as it seeks
opportunities in the rapidly growing African markets.
2.3 DETAILS OF LITHA AND PALADIN
2.3.1 LITHA
Litha is a JSE-listed integrated healthcare company with a
varied product offering in: biotechnology/vaccines,
pharmaceuticals, medical devices and cold chain logistics. The
Group holds 46 international agencies and has extensive
contracts in both the public and private healthcare sector.
Litha has seen its share price rise from ZAR 0.45 in March 2009
to its current price of ZAR 2.88. Litha also has a significant
stake in The Biovac Institute, a Public Private Partnership
(PPP) between the SA Government and The Biovac Consortium to
produce vaccines in South Africa and is currently the major
supplier of vaccines to the Department of Health under the
Expanded Programme on Immunisation (EPI).
2.3.2 PALADIN
Paladin Labs Inc., headquartered in Montreal, Canada, is a
speciality pharmaceutical company focused on acquiring or in-
licensing innovative pharmaceutical products for the Canadian
and world markets. With this strategy, a focused national sales
team and proven marketing expertise, Paladin has evolved into
one of Canada`s leading specialty pharmaceutical companies.
Paladin`s shares trade on the Toronto Stock Exchange under the
symbol PLB. For more information about Paladin, please visit
the company`s web site at www.paladinlabs.com.
2.4 PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION
The table below sets out the unaudited pro forma financial effects
of the Transaction on Revenue, earnings per share ("EPS"), headline
EPS ("HEPS"), Diluted EPS, Diluted HEPS, net asset value ("NAV") and
net tangible asset value ("NTAV") per share and diluted EPS and HEPS
based on the reviewed results of the Company and Pharmaplan for the
6 months ended 30 June 2011.
The unaudited pro forma financial effects are the responsibility of
the directors and have been prepared for illustrative purposes only
to provide information about how the Transaction may have impacted
Litha shareholders on the relevant reporting date and because of its
nature may not give a fair reflection of the Company`s financial
position, changes in equity, results of operations or cashflows
after implementation of the Transaction or of the Company`s future
earnings.
-------------------- ------------ ------------- ---------
---- - --- -
Before the After the Change
Transaction( Transaction (%)
1) (2,3)
-------------------- ------------ ------------- ---------
---- - --- -
Revenue (Rand` 000) 888 983 1 059 180 19%
EPS (cents) 11.8 12.6 7%
Headline EPS (cents) 11.8 12.6 7%
Diluted EPS (cents) 11.3 12.2 8%
Diluted headline EPS 11.3 12.2 8%
(cents)
NAV per share 107.0 159.9 49%
(cents)
NTAV per share 20.2 10.1 (50%)
(cents) 374 672 314 543 763 223 45%
Number of shares in
issue 372 198 148 541 289 057 45%
Weighted average
number of shares in
issue
-------------------- ------------ ------------- ---------
---- --
Notes:
1. Extracted from the published reviewed results of the Company for the
period ended 30 June 2011.
2. Adjustments to EPS, Diluted EPS and Diluted headline EPS have been
made on the assumption that:
2.1. the Transaction was effective on 1 January 2011;
2.2. the cash consideration of ZAR125 million was financed by long-
term borrowings, incurring interest at an average interest rate
of 9%; and
2.3. a company tax rate of 28% was applied.
3. Adjustments to NAV and NTAV per share have been made on the
assumption that:
3.1. the Transaction was effective on 30 June 2011; and
3.2. the cash consideration of ZAR125 million was financed by long-
term borrowings, incurring interest at an average interest rate
of 9%.
4. Includes the once-off Transaction costs of approximately ZAR 1.7
million.
5. No post balance sheet event requires adjusting the pro-forma
financial effects.
The audited results of the Company for the 12 months ended 31 December
2011 are anticipated to be released on SENS on Monday, 19 March 2012
("2011 year end results"). Thereafter, and in order to provide a more
meaningful and true reflection of the financial effects of the
Transaction on the Company, Litha will release on SENS, revised financial
effects based on the 2011 year end results.
3. CONDITIONS PRECEDENT
The implementation of the Transaction is subject to the fulfillment of a
number of conditions precedent, including the following:
- the necessary regulatory approvals being obtained from JSE, Takeover
Regulation Panel, Competition Authorities of South Africa, the
Financial Surveillance Department of the South African Reserve Bank
and the Toronto Stock Exchange;
- such ordinary and special resolutions as may be required in order to
bring about the implementation of the Transaction being approved by
Litha shareholders in general meeting (including a special
resolution to increase the capital of Litha prior to the issue by it
of the Subscription Shares and special resolutions in terms of (i)
section 41(3) of the Companies Act (No. 71 of 2008 as amended)
("Companies Act"), authorising the allotment and issue to Paladin of
the Subscription Shares; (ii) section 44(3) of the Companies Act,
approving the provision by Litha of financial assistance, by way of
the giving of certain warranties, to Paladin for the purpose of, or
in connection with, the subscription by Paladin of the Subscription
Shares; and (iii) regulation 31(6) of the Companies regulation, 2011
("Regulations") published in terms of the Companies Act, converting
Litha`s issued par value shares into shares of no par value; and the
requisite resolutions having been filed with and, registered by the
Companies and Intellectual Property Commission);
- Subject to certain conditions, Paladin making the Paladin Offer to
Minorities, which shall be contained in the circular to be sent to
Litha shareholders convening the general meeting of Litha
shareholders referred to in paragraph 4 below;
- Litha shareholders holding not less than 179-million Litha shares,
in the aggregate, irrevocably undertake to reject the Paladin Offer
to Minorities (or any amended Paladin Offer to Minorities, provided
such amendment is not prejudicial to such shareholders); and
- the waiver of the mandatory offer as detailed in paragraph 5 below
("Conditions Precedent").
4. GENERAL MEETING OF LITHA SHAREHOLDERS
Litha shareholders are advised that in accordance with the JSE Listings
Requirements, the acquisition of Pharmaplan is classified as a category 1
transaction and therefore a circular to shareholders will be distributed
on or about Monday, 2 April 2012, incorporating revised listing
particulars, the revised financial effects which will be reported on by
the Reporting Accountants, a fair and reasonable opinion, the Paladin
Offer to Minorities and a notice convening a General Meeting of Litha
shareholders ("the Circular"). The Blackstar Entities will be excluded
from voting on any resolutions relating to the Transaction.
The General Meeting of Litha shareholders will be held at Manta Place,
Turnberry Office Park, 48 Grosvenor Road, Bryanston at 10h00 on
Wednesday, 2 May 2012 ("the General Meeting").
5. WAIVER OF THE MANDATORY OFFER
On implementation of the Transaction, Paladin`s aggregate shareholding in
Litha will be 44.52% excluding any additional Litha shares that may be
acquired by Paladin in terms of the Paladin Offer to Minorities, which
may result in the percentage herein increasing to no more than 49,09%.
The Companies Act (as read with the Regulations) applies to Litha and to
any transaction in relation to shares in Litha which constitutes an
"affected transaction" in terms of section 117 of the Companies Act.
Section 117 of the Companies Act defines an "affected transaction" as,
inter alia, a mandatory offer contemplated in section 123 of the
Companies Act. In turn, section 123 of the Companies Act essentially
provides, under the heading "the mandatory offer", inter alia, that the
person who acquires a beneficial interest in the voting rights attached
to any securities of a regulated company (and, as a result of that
acquisition, that person is able to exercise at least the "prescribed
percentage" (currently 35%) of all the voting rights attached to the
securities of that company), that person shall, inter alia, offer to
acquire (from the holders of the remaining securities of that company)
any remaining securities of the company, on the terms determined in the
Companies Act and the Regulations.
Accordingly, section 123 of the Companies Act will upon implementation of
the transaction apply, in the current circumstances, as Paladin will, as
a result of the Subscription Shares referred to paragraph 2.1.4 above,
acquire in excess of 35% of all voting rights attached to the securities
of Litha and this would ordinarily require a mandatory offer by Paladin
to acquire the remaining Litha shares not already owned by Paladin at an
offer price of ZAR 2.75 cents per share ("Mandatory Offer").
However, the Companies Act and the Regulations, specifically regulation
86(4), permits a waiver to be given to an offeror from the obligation to
make a mandatory offer if such waiver is approved by independent
shareholders, in person or by proxy, holding more than 50% of the general
voting rights of all the issued shares of Litha in a general meeting.
Accordingly, the Transaction is subject to Litha shareholders, excluding
the Blackstar Entities, approving the waiver of the Mandatory Offer,
which resolution requesting such waiver will be included in the Circular
to be posted to Litha shareholders.
In terms of regulation 86(7) of the Regulations, the waiver of the
Mandatory Offer requires a fair and reasonable opinion. BDO Corporate
Finance (Proprietary) Limited has been appointed as the independent
expert to provide the fair and reasonable opinion which will be included
in the Circular.
The notice of General Meeting which will form part of the Circular to
shareholders will include a resolution for the waiver of Paladin (or any
party acting in concert with it) making the Mandatory Offer for Litha
shareholders to consider, and if deemed fit, to approve at the General
Meeting.
6. SALIENT DATES
The salient dates relating to the Transaction will be released on SENS on
date of distribution of the Circular and contained therein.
7. WITHDRAWAL OF CAUTIONARY
As the material terms of the Transaction have been announced, caution is
no longer required to be exercised by Litha shareholders when dealing in
their Litha shares.
Midrand
21 February 2012
Merchant bank and sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Transaction originator and debt underwriter
Blackstar
Independent expert
BDO Corporate Finance Proprietary Limited
Reporting Accountants
Mazars Moores Rowland
Legal advisors
Edward Nathan Sonnenbergs Inc
Independent Sponsor
Deloitte & Touche Sponsor Services Proprietary Limited
Date: 21/02/2012 15:21:01 Supplied by www.sharenet.co.za
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