Wrap Text
Announcement relating to Netcare's proposed restructure of its Health Partners for Life BEE transaction
Netcare Limited
Incorporated in the Republic of South Africa
(Registration number 1996/008242/06)
JSE share code: NTC
ISIN: ZAE000011953
(“Netcare” or “the Company” or “the Group”)
DETAILED TERMS ANNOUNCEMENT RELATING TO NETCARE’S PROPOSED RESTRUCTURE
OF ITS HEALTH PARTNERS FOR LIFE BLACK ECONOMIC EMPOWERMENT (“BEE”)
TRANSACTION (“TRANSACTION”)
Highlights
- Netcare will repurchase, by way of a specific repurchase, (“specific repurchase”) all of the ordinary
issued shares in Netcare held by Netcare Health Partners For Life Finance Company Proprietary
Limited (“HPFL Finco”) and The Patient Care and Passionate People Finance Company
Proprietary Limited (“PCT Finco”), being the two BEE funding vehicles (collectively, the “Fincos”).
- The Fincos will utilise the proceeds from the specific repurchase to settle their current outstanding
liabilities and make a capital contribution to each of the four BEE trusts (namely, as defined below,
the PCT, the PPT, the MCT and the HLT (collectively, the “Trusts”)) to enable each of the
aforesaid Trusts to subscribe for ordinary shares directly in Netcare.
- Netcare’s BEE transaction will be debt-free and enhance value for future participants (no more
finance costs) who may also be able to participate in dividends on new unit allocations.
- The structure of the Netcare BEE transaction will be simplified and the financial management and
administrative functions will be reduced.
1. Introduction and rationale
In 2005, Netcare concluded the initial Netcare BEE transaction in terms whereof, inter alia,
Netcare issued, in aggregate, 160 million Netcare shares to the Fincos for the benefit of a range
of beneficiaries of the Trusts pursuant to a transaction worth R1 billion. The Trusts that are
participants to the BEE transaction are the Patient Care and Passionate People Trust (“PCT”), the
Physicians Partnership Trust (“PPT”), the Mother and Child Trust (“MCT”) and the Healthy
Lifestyle Trust (“HLT”).
The initial Netcare BEE transaction was funded with preference shares. Netcare now wishes to
make certain amendments to the Netcare BEE transaction. The increase in the Netcare share
price has created an opportunity for the HPFL scheme and the PCT scheme to increase value for
future beneficiaries by the repayment of the Finco liabilities (thereby eliminating future funding
costs) and by simplifying the current structure. The purpose of this 2015 restructure is to simplify
the scheme structure, scheme administration and to settle the scheme funding.
The restructure is in line with Netcare’s Broad-based Black Economic Empowerment (B-BBEE)
objectives. Following the restructure, the Netcare BEE transaction will be debt-free and enhance
value for future participants (no more finance costs) who may also be able to participate in
dividends on new unit allocations.
The purpose of this announcement is to provide Netcare shareholders with the salient terms of the
Transaction.
2. PCT restructure steps
The PCT restructure steps are set out below. For illustrative purposes, all amounts included in the
steps below are based on R39.24 per Netcare share, representing the five day volume weighted
average price (“VWAP”) of a Netcare share up to 29 May 2015, being the last practicable date for
finalisation of this announcement (“last practicable date”).
2.1 Specific repurchase
Netcare repurchases, by way of a specific repurchase in terms of paragraph 5.69 of the
Listings Requirements of the JSE Limited (“Listings Requirements”) and section 48 of the
Companies Act, No. 71 of 2008 (as amended) (“Companies Act”) a maximum of
67 000 000 Netcare shares from PCT Finco at the transaction share price (as defined
below) which, in aggregate, will be an amount of approximately R2.6 billion. These shares
will be cancelled, delisted and reinstated as authorised but unissued shares.
The specific repurchase will be concluded at the five day VWAP of Netcare shares up to
and including the day before the implementation date of the specific repurchase
(“transaction share price”). The specific repurchase will be funded out of the Group’s
available cash resources and the available short term credit facilities of the Group .
2.2 Redemption of the redeemable preference shares
PCT Finco uses a portion of the proceeds from the specific repurchase to settle and
redeem the redeemable preference shares (used to finance the initial share purchase, in
terms of the initial Netcare BEE transaction) held by Netcare Hospital Group Proprietary
Limited (“NHG”) for approximately R591 million and to distribute the accrued and unpaid
dividends of approximately R28 million to NHG.
2.3 Capitalisation of the PCT by PCT Finco
PCT Finco uses the remaining proceeds from the specific repurchase (after making
provision for the settlement of other liabilities of PCT Finco (e.g. sundry creditors and
taxes)) to declare a dividend to the PCT equal to the value of the allocated portion of the
PCT scheme (and withhold any amount to be withheld in terms of dividend withholding
tax) and uses the remainder of the repurchase proceeds to make a capital contribution to
the PCT. This will provide the capital to enable the PCT to acquire direct ownership of the
Netcare shares. The capital contribution will entitle PCT Finco to the residual capital and
income of the PCT after all distributions have been made to beneficiaries and the PCT
scheme has fully matured. PCT Finco will also become the residual beneficiary of the
PCT in respect of any forfeited trust units.
2.4 Specific issue
PCT uses the dividend and capitalisation proceeds of approximately R2.0 billion to
subscribe for, and Netcare allots and issues to PCT, by way of a specific issue in terms of
paragraph 5.51 of the Listings Requirements, approximately 50 900 000 Netcare shares
at the transaction share price. PCT will subscribe for fewer shares than those
repurchased from PCT Finco as some of the repurchase proceeds will be used for
repayment of PCT Finco’s liabilities.
PCT is a non-public shareholder (as defined in paragraphs 4.25 to 4.27 of the Listings
Requirements) for purposes of the specific issue as contemplated in paragraph 5.51(b) of
the Listings Requirements.
2.5 Issue of new units by PCT
Holders of existing units in the PCT scheme (i.e the allocated portion of the scheme) will
retain their current units and will not be affected by the restructure. The terms and
amounts of the new issues will be determined by Netcare’s Human Resources
department, together with its Remuneration Committee and trustees of the PCT. It is not
the intention of Netcare to issue all available units in a single issue or at all.
The size of the new award will be determined with reference to the financial implications
thereof for Netcare. As at the last practicable date, no new allocations have been
determined and allocations will be the same as before the Transaction.
3. HPFL restructure steps
The HPFL restructure steps are set out below. All amounts included in the steps below are based
on indicative values calculated based on an assumed transaction share price of R39.24 per
Netcare share representing the five day VWAP of a Netcare share, up to the last practicable date.
3.1 Specific repurchase
Netcare repurchases, by way of a specific repurchase in terms of paragraph 5.69 of the
Listings Requirements and section 48 of the Companies Act, a maximum of 50 600 000
Netcare shares from HPFL Finco at the transaction share price which, in aggregate, will
be approximately R2.0 billion. These shares will be delisted, cancelled and reinstated as
authorised but unissued shares.
The specific repurchase will be concluded at the transaction share price. The specific
repurchase will be funded out of the Group’s available cash resources and the available
short term credit facilities of the Group.
3.2 Redemption of the redeemable preference shares
HPFL Finco uses a portion of the proceeds from the specific repurchase to settle and
redeem the redeemable preference shares held by NHG for approximately R265 million
and to distribute the accrued and unpaid dividends of approximately R134 million to NHG.
3.3 Capitalisation of the PPT, MCT and HLT by HPFL Finco
HPFL Finco uses the remaining proceeds (after making provision for the settlement of
other liabilities of HPFL Finco (e.g. sundry creditors and taxes) to make capital
contributions to the PPT, MCT and HLT which will enable them to acquire direct
ownership of the Netcare shares. The capital contributions will entitle HPFL Finco to the
residual capital of the PPT, MCT and HLT after all distributions have been made to
beneficiaries and the PPT, MCT and HLT schemes have fully matured. HPFL Finco will
also become the residual beneficiary of the PPT, MCT and HLT in respect of any forfeited
units.
3.4 Specific issue
PPT, MCT and HLT use the remaining proceeds of approximately R1.6 billion to
subscribe for, and Netcare allots and issues to the PPT, the HLT and the MCT, by way of
a specific issue in terms of paragraph 5.51 of the Listings Requirements, in aggregate,
approximately 40 200 000 Netcare shares at the transaction share price. PPT, MCT and
HLT will collectively subscribe for fewer shares than those repurchased from HPFL Finco
as some of the repurchase proceeds will be used for repayment of HPFL Finco’s
liabilities. The specific issue will be concluded at the transaction share price.
PPT is a non-public shareholder (as defined in paragraphs 4.25 to 4.27 of the Listings
Requirements) for purposes of the specific issue as contemplated in paragraph 5.51(b) of
the Listings Requirements.
3.5 Issue of new units by PPT, MCT and HLT
PPT, MCT and HLT may in future award new units to their beneficiaries. The terms and
amounts of any new issues will be determined by Netcare and the trustees of the PPT,
HLT and MCT with reference to the specific objectives of the aforesaid three Trusts. It
should be noted that it is not the intention to award all the available units to beneficiaries
in a single issue or at all.
The size of any new award will be determined with reference to the financial implications
thereof for Netcare. As at the last practicable date no new allocations have been
determined and allocations will be the same as before the Transaction.
4. Pro forma financial effects of the Transaction
The pro forma financial effects of the Transaction have been prepared for illustrative purposes
only and due to the nature thereof, may not fairly present Netcare’s financial position, changes in
equity, results of operations or cash flows after completion of the Transaction. The pro forma
financial effects are the responsibility of the directors and are based on the unaudited, published
results for the financial six months ended 31 March 2015.
The purpose of the pro forma financial effects is to illustrate the impact 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.
The effect on EPS, diluted and headline EPS, NAV and tangible NAV per share have been
reflected below:
Pro forma % increase /
Adjustments Adjustments Pro forma
Unaudited after the (decrease) as
1 for the specific for the specific after the
specific a result of the
repurchase issue Transaction2
repurchase Transaction
EPS (cents)3 82.6 - 82.6 (0.3) 82.3 (0.3%)
Diluted EPS (cents)3 80.7 - 80.7 (0.3) 80.4 (0.3%)
Headline EPS
(cents)3 81.4 - 81.4 (0.3) 81.1 (0.3%)
Diluted headline
EPS (cents) 79.6 - 79.6 (0.3) 79.3 (0.3%)
NAVPS (cents) 927.0 (3.8) 923.3 (0.3) 923 (0.4%)
Tangible NAVPS
(cents) 614.4 (3.8) 610.7 (0.3) 610.4 (0.7%)
Weighted average
number of ordinary
shares in issue
(million) 1,342 - 1,342 - 1,342 0.0%
Diluted weighted
average number of
ordinary shares in
issue (million) 1,373 - 1,373 - 1,373 0.0%
Number of ordinary
shares in issue
(million) 1,479 (118) 1,361 91 1,453 (1.8%)
Number of ordinary
shares in issue net
of treasury shares
(million) 1,343 - 1,343 - 1,343 0.0%
Notes:
1. Extracted from Netcare’s unaudited group results for the six months ended 31 March
2015.
2. Represents the pro forma financial effects after the specific repurchase and the specific
issue.
3. Earnings, headline earnings and diluted earnings per share effects are based on the
following principal assumptions:
- the specific repurchase and the specific issue were effective 1 October 2014;
- maximum of 117 600 000 shares repurchased in terms of the specific repurchase;
- approximately 91 100 000 shares issued in terms of the specific issue;
- a share price of R39.24 per Netcare share, being the five day VWAP to the last
practicable date was used to determine the number of shares issued in terms of the
specific issue;
- total estimated Transaction costs of R5 million were incurred, which are once off in
nature; and
- taxation accrued at 28%.
4. NAV and TNAV effects are based on the following principal assumptions:
- the specific repurchase and the specific issue were effective 31 March 2015;
- a reduction in equity as a result of dividend withholding tax calculated at 15% of the
value of the dividend of approximately R337 million declared by Finco to the PCT;
- total estimated Transaction costs of R5 million were incurred, which are once off in
nature; and
- taxation thereon at 28%.
5. Assuming a five day VWAP of R39.24 per Netcare share, approximately 91 100 000
Netcare Shares will be issued in terms of the specific issue and treated as treasury shares
for accounting purposes. Treasury shares are excluded from the calculation of basic and
diluted earnings per share.
6. For the purpose of calculating “weighted diluted average number of shares in issue”:
- Netcare has assumed a share price of R39.24 per Netcare share, being the Netcare
five day VWAP to the last practicable date; and
- shares in issue in respect of the specific issue do not change the diluted earnings per
share as the allocations before and after do not change.
7. No additional IFRS 2 expense has been raised as holders of existing units in the scheme
will retain their current units and will not be impacted by the restructure. The Trusts intend
to apply previously unallocated shares in the scheme to award new and/or additional units
in the scheme to participants after the restructuring exercise in line with its stated B-BBEE
objectives. The terms and amounts of any new issues will be determined by Netcare
Human Resources department, Remuneration Committee and trustees of the Trusts.
Therefore, there is no additional charge to the company in accordance with IFRS 2 on the
date of the specific issue because at such date new beneficiaries of the Trusts have not
been identified when read in conjunction with the definition of “beneficiary” as detailed in
IFRS 2.
5. Opinion of Directors
The circular to be issued to the Netcare shareholders contains a statement by the board of
directors of Netcare (“Netcare Board”) that the Netcare Board procured a fairness opinion from an
independent professional expert, indicating whether the terms of the specific repurchase are fair to
the Netcare shareholders. BDO Corporate Finance Proprietary Limited was appointed as the
independent professional expert (“Independent Expert”) to consider the terms and conditions of
the specific repurchase. Taking into consideration the terms and conditions of the specific
repurchase, the Independent Expert is of the opinion that the terms and conditions of the specific
repurchase are fair to the Netcare shareholders.
6. Conditions precedent
6.1.1 Specific repurchase
The implementation of the specific repurchase is subject to the fulfilment of the
following conditions precedent:
- obtaining the necessary shareholder approval for the specific repurchase;
- a written exemption or compliance certificate from the Takeover Regulation
Panel (“TRP”) being obtained in accordance with the provisions of the
Companies Act, in terms of whereof, inter alia, the TRP consents to or wholly
exempts the transaction from the application of Part B, Part C and the
Takeover Regulations, alternatively, the TRP partially consenting to or
exempting the application of the aforesaid provisions, on terms and subject to
such conditions as are acceptable to Netcare and the Fincos;
- the agreement in relation to the specific issue being concluded and becoming
unconditional; and
- the JSE approving the acquisition by Netcare of the repurchase shares from
each of the Fincos.
6.1.2 Specific issue
The implementation of the specific issue is subject to the fulfilment of the following
conditions precedent:
- the agreement in relation to the specific repurchase being concluded and
becoming unconditional;
- obtaining the necessary board and shareholder approval for the specific
issue;
- deeds of amendment to each of the Trust deeds being concluded and each of
the capital contributions contemplated therein being completed and paid;
- the board of directors of PCT Finco adopting a written resolution in terms of
section 46 of the Companies Act, in terms whereof the board authorises, inter
alia, a distribution in an amount equal to the vested and unvested allocated
trust units on the date of the distribution (grossed up) by PCT Finco to the
PCT, in its capacity as sole ordinary shareholder of PCT Finco, to enable PCT
Finco to acquire its portion of the Netcare shares; and
- obtaining the necessary trustee approval of each of the Trusts for the specific
issue.
The terms of the transaction agreements stipulate that all conditions precedent must be
fulfilled or waived (as the case may be) by no later than 60 (sixty) business days after the
date of signature of the transaction agreements, whereafter the repurchase shares will be
cancelled and delisted.
7. Documentation
Netcare shareholders are advised that, in accordance with the Listings Requirements, a circular to
the Netcare shareholders, together with a notice of a general meeting to be held at 10h00 on or
about Friday, 10 July 2015, containing the necessary resolutions to be approved by the Netcare
shareholders in order to implement the Transaction, will be issued in due course.
Sandton
3 June 2015
Financial adviser and transaction sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Legal adviser to Netcare
Edward Nathan Sonnenbergs Inc.
Independent reporting accountants and auditors
Grant Thornton
Independent expert
BDO Corporate Finance Proprietary Limited
Sponsor
Nedbank
Date: 03/06/2015 04:00:00 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.
Sharenet Sites 
