| Thu 2 Aug 2007, 14:45 | | MDC--Proposed Acquisition Of Hirslanden Finanz AG |
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MDC
MDC
MDC - Medi-Clinic - Proposed acquisition of Hirslanden Finanz Ag and impending
rights offer
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")
PROPOSED ACQUISITION OF HIRSLANDEN FINANZ AG ("HIRSLANDEN") ("THE PROPOSED
ACQUISITION") AND IMPENDING RIGHTS OFFER ("THE PROPOSED RIGHTS OFFER")
(COLLECTIVELY "THE PROPOSED TRANSACTION")
1. Introduction
The Board of Directors of Medi-Clinic ("the Board") is pleased to
announce that, subject to the fulfillment of the conditions precedent set
out in paragraph 4.5 below, Medi-Clinic Luxembourg S.a.r.l. ("Medi-Clinic
Luxembourg"), a wholly owned subsidiary of the Company, has entered into
an agreement to acquire 100% of Hirslanden, holding company of the
largest private hospital group in Switzerland, from a company controlled
by funds advised by the European private equity group, BC Partners
Limited. The Board also wishes to advise that Medi-Clinic proposes to
proceed, subject to, inter alia, the Proposed Acquisition becoming
unconditional, with a rights offer.
2. Overview of Hirslanden
The Hirslanden group is the leading private hospital group in
Switzerland. Hirslanden currently comprises 13 private acute care
facilities located in nine cantons with 1 275 beds and over 3 600 full-
time equivalent staff. It is renowned for providing the highest level of
quality care and standard of facilities. For the year ended 31 December
2006, Hirslanden reported gross revenue of CHF907 million and earnings
before interest, tax, depreciation and amortisation ("EBITDA") of CHF206
million.
Hirslanden`s strategy is focused on highly specialised and complex
elective surgery, including cardiology, neurosurgery and orthopaedics,
supported by the highest levels of nursing care and recuperative comfort.
As such, Hirslanden is the embodiment of private hospital care in
Switzerland. The Hirslanden group`s hospitals are equipped with state-of-
the-art systems and consist of 78 operating theatres, 13 cardiac catheter
laboratories, six intensive care units, seven radiology institutes,
physiotherapy centres in all hospitals, two sports therapy centres, two
craniofacial centres and six renal dialysis stations and laboratories.
The Hirslanden group provides admitting rights to over 1 400 physicians
and managed 66 732 inpatient admissions during the year ended 31 December
2006.
The current management team of the Hirslanden group, which has been with
the business for many years, has guided Hirslanden through both
acquisition-led and organic growth. Since 1990, Hirslanden has been led
by Dr. Robert Bider, who first joined the group in 1985. Joseph Rohrer
and Reto Heierli, respectively Chief Operating and Chief Financial
Officers, have been with the Hirslanden group for over fifteen years.
Both joined the executive management team through the ranks of hospital
managers.
3. Rationale for the Proposed Acquisition
Medi-Clinic is one of the three major players in the South African
private hospital industry, one of the most developed and mature private
hospital industries in the world. The Company has made a strategic
decision to diversify geographically within its core business of acute,
specialist orientated hospital care and to transform itself into a truly
international hospital company. In this regard, a number of opportunities
have been considered, including investments in greenfield operations in
emerging markets as well as the acquisition of established operations in
developed markets.
Medi-Clinic recently acquired a controlling interest in Emirates
Healthcare Holdings Limited, the largest private hospital group in the
emirate of Dubai, which constituted the first step in unfolding this
international growth strategy.
A further significant opportunity to expand internationally was
identified in Hirslanden. Medi-Clinic believes that Hirslanden presents
the following attractive qualities:
* Hirslanden is a high-quality business with the following range of
attributes:
- the number one player in a highly attractive country;
- a highly competent senior management team with a proven track
record, who has been well known to Medi-Clinic over a long period of
time;
- operationally efficient with stable cash flows
- excellent reputation with high quality facilities enabling it to
attract top medical specialists; and
- Centres of Excellence enhancing its brand and reputation.
* the Proposed Acquisition is beneficial for Medi-Clinic`s South African
operations as significant opportunities exist through cross-pollination
of know-how and best practices;
* the opportunity for synergies and cost savings to the combined Medi-
Clinic group;
* an attractive earnings growth profile supported by significant
investment in existing and new facilities; and
* Hirslanden provides a solid platform for future Swiss and European
expansion.
Hirslanden`s focus on treatments at the high end of the acuity spectrum -
"Centres of Excellence strategy" - is very much in line with Medi-
Clinic`s strategy in its home market. The Proposed Acquisition transforms
the Company into a leading international provider of hospital services,
enhancing Medi-Clinic`s Commitment to Quality Care.
The table below highlights certain operational and financial metrics of
the combined group.
Description Medi-Clinic Hirslanden Pro forma Percentage
Note 1 Note 2 combined group change
Hospitals 51 13 64 26%
Beds 6965 1275 8240 18%
Operating theatres 247 78 325 32%
Staff 13300 3600 16900 27%
Revenue (R`m) 5364 4926 10290 92%
EBITDA (R`m) 1151 1119 2270 97%
Note 1 - 31 March 2007
Note 2 - 31 December 2006, using an exchange rate of R5.43/CHF1, being the
average rate for the twelve months ended 31 December 2006
4. Principal terms and conditions of the proposed acquisition
4.1 Purchase consideration
The proposed purchase price for the whole of the issued share capital of
Hirslanden will be CHF2 846 million, which represents an enterprise value
of CHF3 600 million.
4.2 Funding arrangements
Up to CHF2 800 million of new debt has been arranged by Barclays Capital,
the investment banking division of Barclays Bank PLC, and fully
underwritten by Barclays Bank PLC, within Hirslanden, on a non-recourse
basis to Medi-Clinic`s South African operations, which debt will be used
to repay Hirslanden`s existing debt and to pay part of the purchase
price. The interest rates in respect of these facilities have been fixed.
The remainder of the purchase price, which, together with expenses and
interest due on the purchase price in the period up until closing,
amounts to some CHF1 075 million, will be contributed by Medi-Clinic as
equity into Medi-Clinic Luxembourg, the acquiring company and has been
hedged through a three-month forward instrument at R6.08/CHF1.
Medi-Clinic`s equity contribution will initially be funded using finance
provided by The Standard Bank of South Africa Limited and Liberty Group
Limited (represented by Stanlib Asset Management Limited).
4.3 Warranties
Limited warranties, as are normal for a transaction of this nature, have
been obtained.
4.4 Effective date
The effective date for the Proposed Acquisition will be the closing date
thereof, anticipated to be on or before 31 October 2007.
4.5 Conditions precedent
The Proposed Acquisition is subject to the fulfilment of, inter alia, the
following conditions precedent:
* obtaining the necessary approval of Medi-Clinic shareholders, as
required by the Listings Requirements of the JSE Limited ("the JSE"); and
* obtaining the appropriate determinations of various Swiss regulatory
and other authorities.
5. The Proposed Rights Offer
5.1 Rationale for the Proposed Rights Offer
As outlined in paragraph 4 above, Medi-Clinic`s equity contribution in
respect of the Proposed Acquisition is some CHF1 075 million. The Board
has resolved to propose a rights offer in order to raise an amount of up
to R4 500 million, the proceeds of which will mainly be used to pay down
part of the acquisition funding.
5.2 Particulars of the Proposed Rights Offer
In terms of the Proposed Rights Offer, and on the assumption that R4 500
million is to be raised, up to 198.7 million ordinary shares in the share
capital of Medi-Clinic ("rights offer shares") will be offered to Medi-
Clinic shareholders at an issue price of no less than 2 265 cents per
rights offer share.
Further details on the Proposed Rights Offer will be contained in the
rights offer circular that will be posted to shareholders in due course.
5.3 Underwriting and undertakings to follow rights
The Proposed Rights Offer is partially underwritten by Stanlib Asset
Management Limited (in its capacity as portfolio manager for Liberty
Group Limited) and RMB Asset Management (for and on behalf of its
clients) to a maximum of R1 569 million. In addition, Remgro Limited, an
approximate 43% shareholder in Medi-Clinic, has irrevocably undertaken to
follow its rights in respect of the Proposed Rights Offer and portfolio
managers, representing approximately 7% of the Medi-Clinic shares in
issue, have irrevocably undertaken to recommend that their clients follow
their rights. The cumulative effect of these arrangements is that not
less than 85% of the shares offered in terms of the Proposed Rights Offer
should be taken up.
5.4 Increase in authorised share capital
Medi-Clinic presently does not have sufficient authorised but unissued
ordinary share capital to implement the Proposed Rights Offer. In order
to implement the Proposed Rights Offer, Medi-Clinic shareholders will,
therefore, be requested to consider and, if deemed fit, approve at the
general meeting referred to in paragraph 9 below, a special resolution to
increase the authorised share capital.
5.5 Conditions precedent
The making of the Proposed Rights Offer is subject to the fulfilment of,
inter alia, the following conditions:
* the Proposed Acquisition becoming unconditional;
* Medi-Clinic increasing its authorised share capital by R55 million
through the creation of 550 000 000 additional Medi-Clinic ordinary
shares of 10 cents each that will rank pari passu in all respects with
Medi-Clinic ordinary shares already in issue; and
* sufficient authorised but unissued Medi-Clinic ordinary shares being
placed under the control of the directors in order to implement the
Proposed Rights Offer.
6. Voting undertakings
Shareholders owning approximately 58% of the votable shares in Medi-
Clinic have provided irrevocable undertakings to Medi-Clinic to vote in
favour of the ordinary and special resolutions required to approve the
Proposed Acquisition and implement the Proposed Rights Offer. In
addition, portfolio managers, representing approximately 9% of the
votable shares in Medi-Clinic, have provided irrevocable undertakings to
either recommend to their clients to vote in favour of the ordinary and
special resolutions required to approve the Proposed Acquisition and
implement the Proposed Rights Offer, or to vote in favour of such
resolutions unless otherwise instructed by their clients.
7. Pro forma financial effects of the proposed transaction
The unaudited pro forma financial effects set out below have been
prepared to assist Medi-Clinic shareholders to assess the impact of the
Proposed Transaction on the earnings per share ("EPS"), headline EPS
("HEPS"), net asset value ("NAV") per share and tangible NAV ("TNAV") per
share. Due to the nature of these pro forma financial effects, they are
presented for illustrative purposes only and may not fairly present the
Company`s financial position or the results of its operations after the
Proposed Transaction.
A simple consolidation of the historical financial information does not
appropriately reflect the future prospects of the combined businesses due
to, inter alia, the following factors:
* the impact of various recent investments made by Hirslanden in
facilities to grow capacity and/or to improve the service offered to
patients is not fully reflected in Hirslanden`s historical results;
* Medi-Clinic anticipates potential synergies and efficiencies due to the
joint adoption of best practices;
* the effect of financial and operational leverage in the context of
fixed interest rates;
* efficiencies in the permanent funding structure; and
* movements in the ZAR/CHF exchange rate.
Consequently historical performance is not an appropriate reflection of
future prospects.
The pro forma financial effects have been prepared in terms of the JSE
Listing Requirements and the Guide on Pro Forma Financial Information
issued by the South African Institute of Chartered Accountants and will
be reported on by PricewaterhouseCoopers Advisory Services (Proprietary)
Limited. These unaudited pro forma financial effects are the
responsibility of the Board and are provided for illustrative purposes
only. The material assumptions are set out in the notes following the
table.
Pro forma Before the Pro forma After the Percentage
financial Proposed adjustments Proposed change
effects for Transaction Transaction
the year ended Note 1 Notes 2 & 3
31 March 2007
EPS (cents) 162.5 (68.8) 93.7 (42.3)
HEPS (cents) 162.2 (68.6) 93.6 (42.3)
NAV per
share (cents) 575.5 596.4 1171.9 103.6
TNAV per
share (cents) 458.9 (285.4) 173.5 (62.2)
Ordinary shares in
issue (million) 359.4 198.7 558.0 55.3
Weighted average number
of ordinary shares in
issue (million) 357.6 174.2 531.8 48.7
Notes and assumptions
1. Extracted from the audited published results of Medi-Clinic for the year
ended 31 March 2007.
2. For the purposes of calculating EPS and HEPS it was assumed that:
(a) the proposed transaction was effected on 1 April 2006;
(b) the income statement information of Hirslanden was extracted from its
audited financial statements for the year ended 31 December 2006;
(c) Hirslanden`s income statement information was converted at
R5.70:CHF1, being the average rate for the 12 months ended 31 March 2007;
(d) existing debt within Hirslanden was refinanced by new debt on
acquisition;
(e) funding facilities were used for 45 days and thereafter the proceeds
of the Proposed Rights Offer amounting to R4 500 million were utilised to
partially settle the funding;
(f) depreciation written off on the buildings of Hirslanden was adjusted
due to revised accounting estimates based on Medi-Clinic`s policy; and
(g) taxation has been taken into account on the adjustments at the
applicable tax rates.
3 For the purposes of NAV per share and TNAV per share it was assumed that:
(a) the proposed transaction was effected on 31 March 2007;
(b) the balance sheet information of Hirslanden was extracted from its
audited financial statements at 31 December 2006;
(c) land and buildings within Hirslanden were revalued to fair value;
(d) deferred taxation liability at a rate of 22% was raised on the
revaluation surplus;
(e) existing debt within Hirslanden was refinanced by new debt on
acquisition;
(f) Hirslanden`s balance sheet information was converted at R5.97:CHF1,
being the closing rate at 31 March 2007; and
(g) transaction costs of R631 million are assumed to have been paid on 31
March 2007 and have been either capitalised as part of the purchase
consideration, the cost of debt or written off against reserves depending
on the nature of the costs.
Presented below is the pro forma financial effect on HEPS assuming the optimal
permanent funding structure, post the refinancing of all the bridging
facilities within Hirslanden and Medi-Clinic, was in place from 1 April 2006:
Before the After the
Proposed Pro forma Proposed Percentage
Transaction adjustments Transaction change
HEPS (cents) 162.2 (60.7) 101.5 (37.4)
8. Documentation
The Proposed Acquisition is categorised as a Category 1 transaction in
terms of the JSE Listings Requirements. As the Proposed Rights Offer
will result in an issue of new Medi-Clinic shares which will increase
Medi-Clinic`s issued share capital by more than 30%, Medi-Clinic is
required to provide that information which must be disclosed in terms of
a pre-listing statement. A circular to Medi-Clinic shareholders,
containing, inter alia, information pertaining to the Proposed
Acquisition and the Proposed Rights Offer, and incorporating revised
listing particulars and a notice of general meeting is expected to be
posted to shareholders on or about 16 August 2007.
9. General meeting
A general meeting of Medi-Clinic shareholders is expected to be held at
09:00 on or about 7 September 2007, at the registered office of the
Company, Medi-Clinic Offices, Strand Road, Stellenbosch, 7600 to
consider, and, if deemed fit, pass, with or without modifications, the
ordinary resolution required to approve the Proposed Acquisition and the
special and ordinary resolutions required to implement the Proposed
Rights Offer.
10. Salient dates and times
Last day to lodge forms of proxy for the general meeting, by 09:00 on
Wednesday, 5 September 2007
General meeting to be held at 09:00 on Friday, 7 September 2007
Results of general meeting published on SENS on Friday, 7 September 2007
Results of general meeting published in the press on Monday, 10 September
2007
Notes
1. The above important dates and times in relation to the general meeting
are subject to change. Any changes will be released on SENS and published
in the press.
2. If the general meeting is adjourned or postponed, forms of proxy must be
received by no later than 48 hours prior to the time of the adjourned or
postponed general meeting (excluding Saturdays, Sundays and official
South African public holidays).
3. Unless otherwise indicated, all times are South African times.
Information on the salient dates and times of the Proposed Rights Offer
will be published in due course.
Shareholders are referred to the cautionary announcement, dated 1 August
2007, and are advised that caution is no longer required to be exercised
by shareholders when dealing in their shares.
Stellenbosch
2 August 2007
Joint financial advisors to Medi-Clinic
Dresdner Kleinwort Limited
The Standard Bank of South Africa Limited
Citigroup Global Markets Limited
Transaction sponsor to Medi-Clinic
The Standard Bank of South Africa Limited
Legal advisors to Medi-Clinic
Hofmeyr Herbstein & Gihwala Inc.
Lenz & Staehelin (Switzerland)
Baker & McKenzie LLP
Independent reporting accountants to Medi-Clinic
PricewaterhouseCoopers Advisory Services (Proprietary) Limited
Debt providers to Medi-Clinic
The Standard Bank of South Africa Limited
Liberty Group Limited (represented by Stanlib Asset Management Limited)
Debt providers to Hirslanden
Barclays Bank PLC
Legal advisors to Barclays Capital and Barclays Bank PLC
Pestalozzi Lachenal Patry
Clifford Chance LLP
Lead independent sponsor to Medi-Clinic
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Joint financial advisors to BC Partners Limited
NM Rothschild and Sons Limited
UBS Limited
Legal advisors to BC Partners Limited
Homburger
Dickson Minto WS
Date: 02/08/2007 14:45:05 Produced by the JSE SENS Department.
