| Thu 19 Apr 2007, 16:59 | | MDC - Medi-Clinic - Acquisition of a controlling i |
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MDC
MDC
MDC - Medi-Clinic - Acquisition of a controlling interest in Emirates Healthcare
Holdings Limited, a private healthcare group in Dubai
MEDI-CLINIC CORPORATION LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1983/010725/06)
(Share code: MDC)
(ISIN: ZAE000074142)
("Medi-Clinic" or "the company")
ACQUISITION OF A CONTROLLING INTEREST IN EMIRATES HEALTHCARE HOLDINGS LIMITED, A
PRIVATE HEALTHCARE GROUP IN DUBAI
1. Introduction
Further to the SENS announcement on 28 April 2006, as well as the
announcement included in the interim results released on SENS on 8 November
2006, Medi-Clinic is pleased to announce that the acquisition of a
controlling interest in Emirates Healthcare Holdings Limited ("Emirates
Healthcare") has become unconditional with effect from 27 March 2007 ("the
Transaction").
2. Background and rationale
2.1 As part of its strategic intention of expanding its business
internationally, Medi-Clinic continuously evaluates investment
opportunities in other parts of the world.
2.2 Emirates Healthcare owns and operates one of the two biggest private
hospitals in Dubai, the 120-bed Welcare Hospital, along with one
ambulatory surgery centre and two clinics which are in close
proximity. It has also commenced with the construction of the first
hospital in Dubai Health Care City ("DHCC"), the City Hospital with
210 beds, which is scheduled for commissioning towards the end of
2007. In addition, Emirates Healthcare has the right to develop a
further hospital in DHCC and plans to develop a further three related
clinics of which two will open during this year. This will make
Emirates Healthcare the largest private healthcare provider in Dubai.
2.3 The private healthcare market in the United Arab Emirates ("UAE") can
be described as follows:
2.3.1 Background of the UAE and private healthcare market
The UAE is one of the wealthiest countries in the Middle
East, largely due to its oil industry. The government of
the UAE, in particular the Emirate of Dubai, has been
successful in diversifying the country`s economy away from
the reliance on oil. In Dubai less than 10% of its GDP is
derived from oil. The balance comes from commerce, industry
and tourism.
The private healthcare market is currently under-developed
and health services are still dominated by public services.
Due to the growing economy and the concomitant growth in the
expatriate worker population, the government of the UAE
however finds it increasingly difficult to cope with the
growing healthcare burden. It has a stated aim and policy to
encourage private healthcare to assist them in meeting the
needs; consequently private healthcare spending has been
increasing and accounted for 56% of total healthcare spend
in 2004. Furthermore, developments such as DHCC have been
successful in attracting substantial foreign investment in
private healthcare.
2.3.2 Size of the market
There are approximately 74 hospitals with 8 700 beds in the
UAE (Dubai: 24 hospitals with 2 668 beds) of which
approximately 20% (Dubai: 31%) are operated by private
healthcare providers.
The population of the UAE was estimated to be 4.6m in 2006
(Dubai +/-1.4m) of which 74% are estimated to be expatriates
(Dubai +/-80%). The unemployment rate is negligible.
Authorities are aiming and have started to introduce
comprehensive health insurance throughout the UAE, which
will lead to the expansion of businesses that provide
compulsory health cover for employees.
There is an increasing demand for hospital beds due to the
expanding population and growing foreign direct investment.
It is estimated that, in comparison to 2005, an additional 5
082 hospital beds will be required by 2010.
2.4 This investment in Dubai is an ideal platform to enter health care
markets in the rest of the Gulf Coalition Countries and the Middle
East.
3. Terms of the Transaction
3.1 The terms of the Transaction are recorded in a shareholders agreement
entered into between, inter alia, Sunny Varkey (founder of Emirates
Healthcare), Medi-Clinic Middle East (Proprietary) Limited ("Medi-
Clinic Middle East") and General Electric Company ("GE"), a member of
the General Electric Group, on 26 April 2006, as amended ("the
Agreement").
3.2 In terms of and pursuant to the Agreement: -
3.2.1 Medi-Clinic Middle East subscribed for an equity interest of
50% plus one share in Emirates Healthcare for an amount of
US$53,1 million (R384,2 million);
3.2.2 GE subscribed for a 6,59% equity interest in Emirates
Healthcare for an amount of US$7 million;
3.2.3 Sunny Varkey will retain an equity interest of 43,41% in
Emirates Healthcare; and
3.2.4 the parties will endeavour to secure a further strategic
equity investor in the subsidiary of Emirates Healthcare
which owns the Dubai based operating companies. Medi-Clinic
Middle East subscribed for cumulative variable rate
participating redeemable convertible preference shares
("Preference Shares") in Emirates Healthcare for an amount
of US$21,5 million (R155,2 million) to fund a portion of the
equity contribution reserved for the strategic equity
investor.
3.3 In terms of the Agreement, Medi-Clinic Middle East will be entitled to
appoint four of the seven directors on the Board of Emirates
Healthcare.
3.4 Medi-Clinic Middle East will also have management control of the
Emirates Healthcare Group.
3.5 The total equity capital referred to above together with debt funding
from local financial institutions in the amount of US$102 million is
adequate to fund all the projects mentioned in 2.2 above. The debt
funding is in the process of being finalised.
4. Financial effects
The unaudited pro forma financial effects set out below have been prepared
to assist Medi-Clinic shareholders to assess the impact of the Transaction
on the earnings per share ("EPS"), headline EPS ("HEPS"), net asset value
("NAV") per share and tangible NAV ("TNAV") per share. These unaudited pro
forma financial effects do not constitute a representation of the future
financial position, changes in equity, results of operations or cash flows
of the company on implementation of the Transaction. The material
assumptions are set out in the notes following the tables. These unaudited
pro forma financial effects are the responsibility of the Board and are
provided for illustrative purposes only.
Unaudited Unaudited Unaudited %
(1) before pro forma pro forma change
the effect of after
Transaction the the
Transaction Transaction
EPS (cents) 76.2 (2) (0.2) (2) 76.0 (0.2)
HEPS (cents) 76.2 (2) (0.2) (2) 76.0 (0.2)
NAV per share (cents) 503 (3) - 503 (0.0)
TNAV per share (cents) 489 (3) (132.4) 357 (27.1)
Notes and assumptions:
1. Extracted from unaudited published interim results of Medi-Clinic for
the six months ended 30 September 2006.
2. Based on the assumption that the Transaction was implemented on 1
April 2006. Interest foregone on cash utilised for the Transaction is
calculated at an after-tax rate of 5,3%.
3. Based on the assumption that the Transaction was implemented on 30
September 2006.
4. In terms of "IAS 27 - Consolidated and Separate Financial Statements",
Medi-Clinic is required to consolidate Emirates Healthcare since Medi-
Clinic has control over the entity.
Stellenbosch
19 April 2007
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Attorneys
Hofmeyr Herbstein & Gihwala Inc.
Investment Bank to Medi-Clinic
The Standard Bank of South Africa Limited
Date: 19/04/2007 16:59:46 Produced by the JSE SENS Department.
