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MEDICLINIC INTERNATIONAL LIMITED - TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF THE MINORITY INTERESTS IN EMIRATES HEALTHCARE HOLDINGS LIMITED

Release Date: 27/08/2012 08:00
Code(s): MDC     PDF:  
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TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF THE MINORITY INTERESTS IN EMIRATES HEALTHCARE HOLDINGS LIMITED

Mediclinic International Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1983/010725/06)
ISIN: ZAE000074142
Share Code: MDC
(Mediclinic or the Group)

TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF THE MINORITY
INTERESTS IN EMIRATES HEALTHCARE HOLDINGS LIMITED (EMIRATES
HEALTHCARE)

- Mediclinic to increase its effective shareholding in Emirates
Healthcare to 100%
- In line with the Groups strategy to invest in attractive growth
and development opportunities
- Transaction enhances normalised headline earnings per share for
the Group on an unaudited pro forma basis for the year ended 31
March 2012
- Related party transaction in terms of the JSE Listings
Requirements, which requires a fairness opinion and shareholder
approval

1. Introduction
Mediclinic shareholders are advised that Mediclinic, through its
wholly-owned subsidiary, Mediclinic Middle East Holdings Limited
(MCME), has reached agreement with Varkey Group Limited
(Varkey) to acquire its c.44.39% stake in Emirates Healthcare
(the Varkey stake acquisition) for a cash purchase consideration
of US$200m (c.ZAR1.65bn) (the Varkey purchase consideration).

In addition, MCME has reached agreement with the other minority
shareholder in Emirates Healthcare, General Electric Company
(GE), to acquire its c.5.24% stake in Emirates Healthcare (GE
stake acquisition) at a price per share equal to that payable under
the Varkey stake acquisition, to be settled in cash. The total
purchase consideration payable under the GE stake acquisition is
therefore c.US$23.6m (c.ZAR195m) (GE purchase consideration).
The Varkey stake acquisition and the GE stake acquisition are
collectively referred to as the transaction.

As part of the transaction process, Emirates Healthcare has also
agreed to purchase the 0.75% interest held by other minority
shareholders in its principal subsidiary, Emirates Healthcare
Limited, thereby rendering it a wholly-owned subsidiary. The
consideration payable under such transaction is not material.

2. Rationale and terms of the transaction
Emirates Healthcare is the largest private healthcare group in
Dubai with 2 hospitals and 8 clinics. The business is a fully
integrated healthcare model with high level facilities offering
services from primary care through to tertiary care, including
preventative and diagnostic treatments.

Emirates Healthcare currently employs approximately 1,900 staff,
has the capacity to operate 334 beds, and sees in excess of
600,000 patients per annum in its hospital and clinic outpatient
facilities.

Business in Dubai has grown at an exceptional rate since
Mediclinic's entry into the region in 2006. Whilst the opening of
The City Hospital in 2008, which is Dubais largest private
hospital, has driven much of the growth, all of the other 9
business units continue to flourish.

Emirates Healthcare is ideally positioned to benefit from the
ongoing growth within the UAE and surrounding regions. Revenue has
grown from ZAR482m in 2008 to ZAR1,831m for the year ended 31
March 2012 and the normalised EBITDA (earnings before interest,
taxation, depreciation and amortisation) margin from 10.3% to
19.2% over that period. Mediclinic currently effectively owns
c.50.37% of the issued share capital of Emirates Healthcare. The
transaction will increase Mediclinics effective shareholding in
Emirates Healthcare to 100%. Mediclinic management is optimistic
about the outlook for Dubai and the UAE and believes that the
transaction represents the next step in its growth strategy for
the region. The transaction is in line with Mediclinics strategic
objective of investing in attractive growth and development
opportunities.

MCME will purchase all of the shares that Varkey and GE (the
sellers) hold in the capital of Emirates Healthcare for the
collective purchase consideration of c.US$223.6m
(c.ZAR1.85bn) (purchase consideration), to be settled in cash.
The purchase consideration will be funded by an equity contribution
from Mediclinic of the US$ equivalent of ZAR1bn, together with debt
funding raised in Dubai for the balance. Negotiations with
Standard Chartered Bank regarding appropriate debt funding are at
an advanced stage.

Payment of the purchase consideration will take place no later than
23 November 2012, provided that all conditions precedent have been
fulfilled or waived. If the date of payment of the purchase
consideration is on or before 7 October 2012, then MCME will pay the
sellers the purchase consideration only. However, if the
date of payment of the purchase consideration is after 7 October 2012,
then MCME will pay the sellers sellers the purchase consideration plus
interest at an effective rate of 12.1442% p.a. from 8 October 2012 to
the date of payment of the purchase consideration (both days inclusive).

3. Unaudited pro forma financial effects of the transaction
The unaudited pro forma financial effects of the transaction have
been prepared for illustrative purposes only and due to the nature
thereof, may not fairly present Mediclinics financial position,
changes in equity, results of operations or cash flows after
completion of the transaction. The unaudited pro forma financial
effects are the responsibility of the Mediclinic directors and are
based on the published results for the financial year ended 31
March 2012.

The purpose of the unaudited pro forma financial effects is to
illustrate the effects of the transaction had it been implemented
on the dates and on the assumptions set out below. It does not
purport to be indicative of what the financial results would have
been had the transaction been implemented on a different date.

Given the declaration announcement on 24 August 2012, in respect
of the ZAR5.0bn rights offer to be undertaken by Mediclinic
(rights offer), the unaudited pro forma financial effects of the
rights offer have also been shown below for illustrative purposes:

                                                                 %
             Audited             Unaudit
                                                                 increase/
             12        Adjustm   ed pro    Adjustm
                                                     Unaudited   (decrease
             months    ents      forma     ents
                                                     pro forma   ) as a
             ended     for the   after     for the
                                                     after the   result of
             31        rights    the       transac
                                                     transaction the
             March     offer     rights    tion
                                                                 transacti
             2012                offer
                                                                 on
Earnings
per share
(cents)        194.7    (61.4)     133.3       8.6        141.9       6.5%
Diluted
earnings
per share
(cents)        187.3    (57.9)     129.4       8.3        137.7       6.4%
Headline
earnings
per share
(cents)        194.9    (61.4)     133.5       8.6        142.1       6.4%
Diluted
headline
earnings
per share
(cents)        187.5    (57.9)     129.6       8.3        137.9       6.4%
Normalised
headline
earnings
per share
(cents)        193.0     (6.6)     186.4       8.5        194.9       4.6%
Normalised
diluted
headline
earnings
per share
(cents)        185.7     (4.8)     180.9       8.2        189.1       4.5%
Net asset
value per
share
(cents)      1,609.4     249.4   1,858.8   (137.2)      1,721.6     (7.4%)
Tangible
net asset
value per
share
(cents)       599.2      469.0   1,068.2   (137.2)        931.0    (12.8%)
Number of
ordinary
shares in
issue
(000)      652,315     174,642  826,957         -       826,957        -
Weighted
average
number of
ordinary
shares in
issue
(000)      627,280     174,642  801,922         -       801,922        -
Weighted
average
diluted
number of
ordinary
shares in
issue
('000)      651,779     174,642  826,421         -       826,421        -
Number of
ordinary
shares in
issue net
of
treasury
shares
(000)      628,557     174,642  803,199         -       803,199        -

Notes and assumptions:
1. The audited financial information has been extracted without
adjustment from the audited financial statements of Mediclinic for
the year ended 31 March 2012
2. The assumptions underlying the pro forma adjustments relating
to the rights offer were set out in the announcement to Mediclinic
shareholders on 24 August 2012 published on SENS
3. The pro forma adjustments to the income statement have been
calculated on the assumption that the transaction took place on 1
April 2011 and that the purchase consideration was paid on 1 April
2011, at the exchange rate of ZAR6.80/USD at that date
4. The pro forma adjustments to the statement of financial
position have been calculated on the assumption that that the
transaction took place on 31 March 2012 and that the purchase
consideration was paid on 31 March 2012, at the exchange rate of
ZAR7.68/USD at that date
5. The purchase consideration was assumed to be financed by
available cash and an overdraft facility in South Africa and long-
term borrowings raised in Dubai
6. On the assumption that the transaction took place on 1 April
2011 for income statement purposes, the purchase consideration was
assumed to be financed by available cash of ZAR631m, an overdraft
facility of ZAR369m and long-term borrowings of ZAR520m
7. On the assumption that the transaction took place on 31 March
2012 for statement of financial position purposes, the purchase
consideration was assumed to be financed by available cash of
ZAR703m, an overdraft facility of ZAR297m and long-term borrowings
of ZAR717m
8. Interest foregone on available cash utilised for the
transaction is calculated at an after-tax rate of 3.8%. Interest
on the overdraft facility is calculated at a pre and post tax rate
of 6.50% and interest on long-term borrowings is calculated at a
pre and post tax rate of 5.64% (continuing effects)
9. The unaudited pro forma financial effects take into account
once-off transaction costs of c.ZAR4.8m (including VAT). Debt
raising fees in respect of the long-term borrowings raised of
c.ZAR13.2m have been capitalised and amortised in determining the
unaudited pro forma financial effects


4. Related party transaction
Varkey currently owns c.44.39% of the issued share capital of
Emirates Healthcare and is thus a material shareholder of Emirates
Healthcare, which is a subsidiary of Mediclinic. Mr Sunny Varkey
is the chairman of Varkey, and Varkey is the principal investment
vehicle of Mr Sunny Varkey and his family. Mr Varkey is also the
chairman of Emirates Healthcare. In terms of the Listings
Requirements of the JSE Limited (JSE), the Varkey stake
acquisition is classified as a related party transaction. As a
consequence, a fairness opinion by an independent expert is
required to advise the board of the fairness of the Varkey stake
acquisition to Mediclinics shareholders.

The board of Mediclinic has appointed PricewaterhouseCoopers
Corporate Finance (Pty) Ltd (PwC) as the independent expert to
provide such fairness opinion.

For the avoidance of doubt, the GE stake acquisition is not
classified as a related party transaction in terms of the JSE
Listings Requirements.

5. Conditions precedent
The implementation of the transaction is subject to the
fulfillment of the following conditions precedent:
- PwC providing the opinion as to whether the terms of the
Varkey stake acquisition are fair to Mediclinic shareholders;
- Mediclinic obtaining the necessary shareholder approval for the
Varkey stake acquisition;
- obtaining the required regulatory approvals from the South
African Reserve Bank (SARB) and the JSE; and
- MCME securing the requisite debt funding to fund part of the
purchase consideration.

The terms of the sale of shares agreement stipulate that all
conditions precedent must be fulfilled or waived (as the case may
be) by no later than at least 8 business days before 30 November
2012.

6. Circular to Mediclinic shareholders
A circular incorporating a notice of general meeting, the full
details of the transaction as well as the opinion of PwC, will be
sent to Mediclinic shareholders in due course.

7. Further announcement
A further announcement setting out the salient dates and times
will be made when the circular has been posted. In addition, the
report of PwC will be made available for inspection at the
registered office of Mediclinic once it has been completed.

Stellenbosch
27 August 2012

Financial adviser and sponsor to Mediclinic
RAND MERCHANT BANK (a division of FirstRand Bank Limited)

Legal adviser to Mediclinic
Cliffe Dekker Hofmeyr Inc.

Reporting accountants and auditors
PricewaterhouseCoopers Inc.

Independent expert
PricewaterhouseCoopers Corporate Finance (Pty) Ltd

Communication adviser to Mediclinic
CapitalVoice

Date: 27/08/2012 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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