RH BOPHELO LIMITED - Category 2 Announcement Regarding The Acquisition Of 51.0% Of The Equity In B Mcgillewie Proprietary Limited Trading

Release Date: 05/02/2019 17:05
Code(s): RHB
 
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Category 2 Announcement Regarding The Acquisition Of 51.0% Of The Equity In B Mcgillewie Proprietary Limited Trading

RH BOPHELO LIMITED
(Previously Newshelf 1388 Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2016/533398/06)
(JSE Share Code: RHB, ISIN: ZAE000244737)
(“RH Bophelo” or “the Company”)

CATEGORY 2 ANNOUNCEMENT REGARDING THE ACQUISITION OF 51.0% OF THE EQUITY IN
B MCGILLEWIE PROPRIETARY LIMITED TRADING AS MEDICARE PRIVATE HOSPITAL (“MPH”)
AND THE ACQUISITION OF 50.1% OF THE EQUITY IN MAGNACORP 84 PROPRIETARY LIMITED
(BEING THE PROPERTY ON WHICH MPH OPERATES) (“PROPCO”)

1. INTRODUCTION

   RH Bophelo is pleased to announce that on 5 February 2019 it entered into a Sale of Shares and
   Claims agreement (“Agreement”), through its wholly owned subsidiary, Megafrack Proprietary
   Limited (“Megafrack”) (being an entity established specifically for the purpose of the Acquisitions),
   in terms of which, upon the fulfilment or waiver (as the case may be) of the conditions precedent
   contained in the Agreement, Megafrack, will, inter alia -

   .     acquire 51.0% of the issued share capital in MPH through the purchase of MPH shares from
         the existing vendors, being John Robert Charles Beaumont and Belinda McGillewie; and
   .     acquire 50.1% of the issued share capital in PropCo through the purchase of PropCo shares
         from the existing vendor, being the JR Beaumont No 1 Trust.

   (collectively the “Acquisitions”).

2. INFORMATION ON MPH AND PROPCO

   MPH

   MPH is an acute 110 bed independent private hospital conveniently located in Rustenberg, North
   West Province. MPH was officially established in 2009 and began as a 36 bed sub-acute hospital
   and has subsequently grown incrementally, with the founders having successfully applied to the
   Department of Health for an increase in beds over the years resulting in MPH becoming an
   established acute facility in the North West Province.

   93.4% of the entire issued share capital of MPH is currently owned by John Robert Charles
   Beaumont and Belinda McGillewie with the remaining 6.6% being held by a special purpose vehicle
   set up for the purpose of establishing an equity ownership scheme for the doctors of MPH (“Doctors
   InvestCo”).

   MPH currently offers the following services (including number of beds):

   .   24/7 Casualty unit;
   .   On-site laboratories and pharmacy;
   .   Chronic and renal dialysis unit;
   .   Major theatres: 3;
   .   Delivery rooms: 2;
   .   Emergency room;
   .   General medical and surgical unit: 65 beds;
   .   Paediatric Unit: 7 beds;
   .   Paediatric Hi-care Unit: 1 bed;
   .   Paediatric ICU Unit: 3 beds;
  .   Neonatal intensive care unit: 6 beds;
  .    Maternity unit: 10 beds;
  .    Intensive care unit: 11 beds; and
  .    High care unit: 7 beds.

   PropCo

   PropCo is a property holding company and is 100% owned by the JR Beaumont No 1 Trust. PropCo
   owns the property and premises on which MPH is situated and MPH leases the premises from
   PropCo. Furthermore, PropCo owns the medical equipment used by MPH. A revised lease
   agreement will be entered into between MPH and PropCo on market related terms and conditions
   with PropCo agreeing that MPH will be granted a long term lease arrangement to afford MPH
   security of tenure in its current location.

   The Acquisitions

   RH Bophelo’s investment into MPH and PropCo (through Megafrak) will be made alongside
   Metamax Proprietary Limited (“Metamax”) (collectively the “Purchasers”). Metamax is a special
   purpose vehicle set up by a private equity fund managed by RH Managers Proprietary Limited
   (“RHM”). Following the Acquisitions the shareholding will be as follows:

  In respect of MPH:
  . RH Bophelo: 51.0%
  . Metamax: 42.4%
  . Doctors InvestCo: 6.6%

  In respect of PropCo:
  . RH Bophelo: 50.1%
  . Metamax: 49.9%

3. RATIONALE FOR THE ACQUISITION

   The Acquisitions represent a strategic opportunity for RH Bophelo to acquire a controlling stake in
   a 110 bed acute urban hospital, servicing a strategic region in the North West Province and further
   expand the reach of the RH Bophelo network of hospitals. Furthermore, the Acquisitions provide
   RH Bophelo with, inter alia, the following:

  .    Quick access into an established facility which has doctors who are trusted in the community
       ensuring a loyal patient base;
  .    The investment will improve the hospitals quality, capacity and service offering, and in so doing
       the residents ability to access quality healthcare as set out in RH Bophelo’s mandate;
  .    Entry into a growing market at an attractive price per bed;
  .    MPH is well positioned to cater for a wide array of income groups and their main source of
       revenue comes from medically insured patients;
  .    MPH will serve as a further reach into the greater North West community;
  .    Opportunity to invest alongside doctors who have a strong patient base in the Rustenburg area
       and are incentivised to grow the hospital; and
  .    Combined with RH Bophelo’s previous acquisitions, RH Bophelo believes that it will be able to
       extract efficiencies from the operation, leading to additional cost savings and earnings growth.

4. SALIENT TERMS OF THE ACQUISITION

   Megafrack acquisition of MPH shares

   RH Bophelo (through Megafrack) will, inter alia, acquire 51.0% of the entire issued share capital in
   MPH for a total consideration of R57.0 million as follows:

  .    Through the issue of 2.5 million RH Bophelo listed shares, which shares will be issued at RH
       Bophelo’s 30 day volume weighted average price (“VWAP”) calculated as at the date the
      conditions precedent to the Agreement having been fulfilled or waived (as the case may be);
      and
  .   The remaining amount is to be funded from RH Bophelo’s existing cash resources, which at the
      date of this announcement is expected to be circa. R32.4 million

  Megafrack acquisition of Propco shares

  RH Bophelo (through Megafrack) will, inter alia, acquire 50.1% of the entire issued share capital in
  PropCo for a total consideration of R92.7 million as follows:

  .   Cash from RH Bophelo’s existing resources of R42.6 million; and
  .   A total debt facility of R100m for the purpose of the PropCo acquisition, of which RHB’s portion
      is R50.1 million taken out with a commercial funder on the following terms:
      o Interest: 3 month JIBAR plus 400 basis points
      o Guarantor: MPH
      o Security: Guarantee from MPH, pledge and cession over shares, insurance policies,
          receivables, bank accounts, mortgage bond, general notarial bond over specialised
          immovable property, full subordination of other loans
      o Term: 5 years

5. SUBSIDIARY

  The Acquisitions result in MPH and PropCo becoming subsidiaries of Megafrack (and hence RH
  Bophelo). The terms of MPH and PropCo’s respective memorandum of incorporations do not in any
  way influence or relieve RH Bophelo’s compliance with its obligations in terms of the JSE Listings
  Requirements.

6. CONDITIONS PRECEDENT

  The remaining conditions precedent, in terms of the Acquisitions, which are to be fulfilled or waived
  (as the case may be) by no later than 28 February 2019 or 31 May 2019 where applicable (or such
  later date as the parties may agree to in writing), are as follows:

  .   by not later than 28 February 2019, the parties provide the Purchasers with proof that the
      existing memorandums of incorporation of MPH and Doctors InvestCo have been successfully
      lodged for filing with the CIPC;

  .   by no later than 28 February 2019, PropCo provides the Purchasers with copies of the title
      deeds in respect of the immoveable property;

  .   by not later than 28 February 2019, the board of directors of each party to the Agreement (that
      is an incorporated entity), has passed a series of resolutions approving the entry into and
      performance by that party to the Agreement and giving the directors or other specified
      individuals of that party the power to enter into the Agreement and to perform all acts required
      of that party;

  .   by not later than 28 February 2019, Doctors InvestCo has irrevocably and unconditionally
      consented to the sale by John Robert Charles Beaumont and Belinda McGillewie of the MPH
      shares and the MPH sale claim to the Purchasers in terms of the Agreement and irrevocably
      and unconditionally waived -

      o    any pre-emptive rights or similar rights Doctors InvestCo may have in respect of the MPH
           shares or the MPH sale claim (or any part of them) which arise as a result of or in
           connection with the sale contemplated in the Agreement;

      o    any option or other rights it may have to acquire the MPH shares or the MPH sale claim
           (or any part of them); and

      o    any rights it may have to require that any shares held by it in MPH be purchased as a
           result or condition of that sale,
      o    whether in terms of the memorandum of incorporation of MPH, any shareholders' or other
           agreement in respect of MPH, the Companies Act or otherwise;

  .   by not later than 28 February 2019, Belinda McGillewie signs a written contract of employment
      with MPH in a form and substance acceptable to the Purchasers (in their absolute discretion);

  .   by not later than 12h00 on the 10th business day following the signature date, the Purchasers
      pay a refundable deposit of R17.5 million to the sellers into a trust account;

  .   by not later than 28 February 2019, the sellers have obtained the release of Belinda McGillewie,
      John Robert Charles Beaumont and the JR Beaumont No 1 Trust from the guarantees and/or
      suretyships given as security for the sellers' obligations to First National Bank in respect of the
      banking facilities and/or loans provided to the sellers and/or Wesbank in respect of the hire
      purchase agreements relating to the equipment;

  .   by not later than 28 February 2019, the Board of Healthcare Funders, the South African
      Pharmacy Council and the HPCSA have been notified;

  .   by no later than 28 February 2019, Belinda McGillewie, John Robert Charles Beaumont provide
      the Purchasers with documentary proof to the effect that the immovable property is specifically
      zoned to allow MPH to conduct its business;

  .   by not later than 28 February 2019, all requisite licences in respect of the hospital business
      have been renewed in the name of MPH;

  .   by not later than 28 February 2019, MPH has valid electrical and fire safety certificates in place;

  .   by not later than 28 February 2019, MPH provides the Purchasers with a monetary computation
      of its leave liability towards its employees;

  .   by no later than 28 February 2019, MPH provides the Purchasers with a monetary computation
      of its pension/provident fund liability towards its employees and proof that all of the contributions
      to those funds on behalf of those employees are up-to-date; and

  .   by not later than 31 May 2019 the approvals required by the Competition Act for the
      implementation of the Acquisitions has been granted, either unconditionally or subject to
      conditions as have been approved in writing by the Purchasers and (to the extent that any such
      conditions are imposed on it) by the sellers, it being agreed that any such approval cannot be
      unreasonably withheld or delayed.

7. FINANCIAL INFORMATION

  MPH

  The latest unaudited management accounts (prepared in accordance with IFRS), for the 6 month
  period ending 31 August 2018, of which RHB is satisfied, showed that MPH had a net asset value
  of R18.3 million and a net profit after tax of R7.2 million.

  PropCo

  The latest unaudited management accounts (prepared in accordance with IFRS), for the 6 month
  period ending 31 August 2018, of which RHB is satisfied, showed that PropCo had a net asset
  value of R37.7 million (the property has not been revalued since acquisition and has been carried
  at cost) and a net profit after tax of R3.7 million.

8. EFFECTIVE DATE

   The effective date of the transaction is expected to be on or about 17 May 2019 (subject to the
   Conditions Precedent noted above).
9. CATEGORISATION

    The Acquisitions qualify as a Category 2 transaction in terms of the JSE Listings Requirements
    and as a result do not require shareholder approval.

10. INITIAL THRESHOLD

    As noted in RH Bophelo’s investment policy, in order to provide shareholders with additional
    protection, shareholders are afforded the opportunity to vote on specific transactions up to a
    threshold of R300 million, however, subject to the categorisation requirements of Section 9 of the
    JSE Listings Requirements. As a result, following the Acquisitions and previous acquisitions made
    since listing, RH Bophelo requires approval from shareholders (subject to section 9 of the JSE
    Listings Requirements) for further transactions of R63.6 million.


Johannesburg
5 February 2019

Corporate Advisors to RH Bophelo: Third Way Investment Partners Proprietary Limited and Birkett
Stewart McHendrie Proprietary Limited

Sponsor to RH Bophelo: Deloitte & Touche Sponsor Services Proprietary Limited

Legal Advisor to RH Bophelo: Motsoeneng Bill Attorneys Incorporated

Legal Advisor to the sellers, MPH and Propco: Werksmans Attorneys

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