| Mon 21 Jul 2008, 8:00 | | TBS - Tiger Brands Limited - Option agreement with Baxter Healthcare S.A. |
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TBS
TIIH
TBS - Tiger Brands Limited - Option agreement with Baxter Healthcare S.A.
TIGER BRANDS LIMITED
"Tiger Brands" or "the Company"
(Incorporated in the Republic of South Africa)
(Registration number 1944/017881/06)
Share code: TBS
ISIN: ZAE000071080
OPTION AGREEMENT WITH BAXTER HEALTHCARE S.A.
1. INTRODUCTION
Tiger Brands and its subsidiary Adcock Ingram Holdings Limited ("Adcock
Ingram") have entered into an agreement with Baxter Healthcare S.A.
("Baxter"), a Swiss company, granting Baxter a call option to purchase 50%
plus 1 share ("Call Option Shares") of the share capital of Adcock Ingram
Critical Care (Proprietary) Limited ("AICC"), for its fair market value at
the time of the exercise of the option. The parties intend for the sale of
the Call Option Shares resulting from the exercise of the call option to be
concluded in January 2011.
2. DESCRIPTION OF THE BUSINESS
2.1. ADCOCK INGRAM
Adcock Ingram is a leading South African healthcare group that has its
origins over 100 years ago. Adcock Ingram has two principal divisions, a
pharmaceutical division selling a range of prescription and over the counter
products, and a hospital products and services division. AICC houses the
hospital products division over which the call option has been granted.
2.2. AICC
AICC provides a comprehensive range of life-saving and life-enhancing
products used in hospitals, clinics, blood transfusion centres, kidney
dialysis units, laboratories and by patients at home. Products supplied
include intravenous fluids, infusion pumps, hospital pharmaceuticals, wound
care products, renal care products and disposables. For the purpose of the
option agreement, AICC excludes the scientific business of Adcock Ingram.
The scientific business provides laboratory and diagnostic equipment and
consumables to the hospital, pathology laboratory, industrial laboratory and
academic research market sectors ("The Scientific Group (Proprietary)
Limited").
3. BACKGROUND AND RATIONALE FOR THE OPTION AGREEMENT
Baxter operates as a healthcare company worldwide. It offers medical
devices, pharmaceuticals, and biotechnology products for the treatment of
haemophilia, immune disorders, cancer, infectious diseases, kidney disease,
trauma, and other chronic and acute medical conditions.
Adcock Ingram enjoys a longstanding and mutually beneficial relationship
with Baxter. Up until 1986 Baxter owned 40% of the hospital products
division at which time it sold its shareholding to Adcock Ingram in
compliance with international sanctions on South Africa at the time.
However, Baxter has continued to supply a range of hospital products and
intellectual know how to AICC and recently it was agreed by both parties
that it was appropriate to redefine the relationship that had its origin in
the late 1940`s. Accordingly Adcock Ingram has entered into a suite of inter-
related agreements which supersede the pre-existing relationship. These
agreements included a licence agreement, a distribution agreement, a raw
materials supply agreement and the option agreement. Baxter has extended its
exclusive relationship with AICC for a further period of 15 years from March
2008.
4. THE OPTION AGREEMENT
In terms of the option agreement, Baxter is granted a call option to
purchase 50% plus 1 share of the share capital of AICC held by Adcock Ingram
for its fair market value at the time of exercise. The fair market value of
the Call Option Shares will be agreed between the parties or, if not agreed,
will be determined by an independent expert, whose recommendation shall be
final and binding on all parties. In either instance, the fair market value
of the Call Option Shares shall be determined in accordance with the
discounted cash flow valuation technique as set out in the option agreement.
The call option exercise price for the Call Option Shares will not exceed R4
862 million and will be settled in cash.
The timing of the exercise of the call option is dependent on the date when
Baxter exercises its right to request that a determination of the fair
market value of the Call Option Shares be made, which request period
commences on 1 February 2010 and ends on 31 July 2010. In terms of the
option agreement, the call option is exercisable by Baxter at its discretion
during a two month period commencing from the date on which Adcock Ingram
and Baxter reach agreement on the fair market value of the Call Option
Shares. In terms of this process, it is estimated that the earliest date on
which the sale resulting from the exercise of the call option will close is
1 January 2011, subject to the approval of the proposed sale by the
competition authorities.
If Baxter exercises the call option and the resulting sale is implemented,
then Adcock Ingram has a put option to sell its remaining stake ("Put Option
Shares") in AICC to Baxter, which put option process may be initiated at any
time during the fourth month after Baxter has acquired the Call Option
Shares. The price of the Put Option Shares will be derived using the same
valuation technique to establish the price of the Call Option Shares as
described above.
Both sales, if concluded, will be subject to customary terms and conditions,
including inter alia the obtaining of necessary regulatory approvals. The
parties have agreed on certain restrictive covenants designed to protect the
value of the call and put options until exercised or lapsed. AICC is not,
however, prevented from consummating a black economic empowerment
transaction.
If Baxter does not exercise its call option, then the relationship between
Baxter and AICC continues for the remainder of the 15 year period commencing
in March 2008. If the put option is not exercised by Adcock Ingram during a
period of one month commencing from the date on which Adcock Ingram and
Baxter reach agreement on the fair market value of the Put Option Shares or
such value is determined by the independent expert, then the put option
shall lapse.
5. PRO FORMA FINANCIAL INFORMATION
The table below sets out the pro forma financial effects of the exercise of
the call option by Baxter on Tiger Brands basic earnings per share, headline
earnings per share, net asset value and tangible net asset value per share,
based on the published unaudited interim results for the 6 months ended 31
March 2008.
The pro forma financial effects have been prepared for illustrative purposes
only and, because of their nature, may not give a true reflection of Tiger
Brands financial position, changes in equity, results of operations or cash
flows. The pro forma financial effects are the responsibility of the
directors of Tiger Brands.
Per Tiger Brands share Actual before Pro forma after Percentage
(cents) the call option the call option change
is exercised1 is exercised4-7
Basic earnings2 690.8 1,241.0 79.6%
Headline earnings2 756.6 770.9 1.9%
Net asset value3 3,942.7 4,476.5 13.5%
Tangible net asset value3 2,894.3 3,434.2 18.7%
Notes:
1.Based on the published unaudited interim results for the 6 months ended 31
March 2008.
2. Basic earnings per share and headline earnings per share are based on
157.9 million shares, being the weighted average number of shares in issue
(excluding treasury shares as well as shares held by certain empowerment
trusts which are eliminated on consolidation) for the 6 months ended 31
March 2008.
3. Net asset value per share and tangible net asset value per share are
based on 157.9 million shares, being the total number of shares in issue
of 172.4 million less treasury shares of 8.6 million and shares held by
the empowerment trusts of 5.9 million.
4. The pro forma financial effects for basic earnings per share and
headline earnings per share assumes an effective date for the exercise of
the call option of 1 October 2007, whilst net asset value per share and
tangible net asset value per share assumes an effective date of 31 March
2008.
5. The pro forma financial effects are based on an indicative purchase
price estimated by management for the interest of 50.56% (50% plus 1
share) in AICC. The estimated purchase price was calculated with reference
to the discounted cash flow valuation technique specified in the option
agreement, and based on management`s estimates of future earnings.
6. Basic earnings, headline earnings, net asset value and tangible net
asset value attributable to the 50.56% interest in AICC (excluding The
Scientific Group (Proprietary) Limited, which is excluded from the call
option agreement, but including the administrative penalty of R53.5
million relating to contraventions by AICC of the Competition Act) are as
follows:
(Rm) -Basic earnings
8.3 -Headline earnings 8.3 -Net asset value
39.4 -Tangible net asset value 29.8
7. The pro forma financial effects take into account capital gains tax
payable on the disposal of the 50.56% interest in AICC, and assume that
the net proceeds from the disposal were invested at the Tiger Brands
group`s average deposit rate as from 1 October 2007.
6. Unbundling of Adcock Ingram
Further to the most recent cautionary announcement dated 17 June 2008,
regarding the proposed unbundling and separate listing of Adcock Ingram on
the JSE Limited, shareholders are advised that Tiger Brands is proceeding
with the required unbundling formalities and expects to release a full
announcement later today. Accordingly, shareholders are advised to continue
to exercise caution in their dealings in the securities of the Company until
such time as a full announcement is made.
BRYANSTON
Date: 21 July 2008
FINANCIAL ADVISER TO TIGER BRANDS
UBS South Africa (Pty) Limited
INDEPENDENT SPONSOR TO TIGER BRANDS
JPMorgan Equities Limited
ATTORNEYS TO BAXTER
Webber Wentzel
ATTORNEYS TO TIGER BRANDS
Edward Nathan Sonnenbergs
Date: 21/07/2008 08:00:02 Produced by the JSE SENS Department.
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