| Tue 24 Nov 2009, 7:05 | | AIP - Adcock Ingram Holdings - Detailed Cautionary Announcement Relating To |
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AIP
AIP
AIP - Adcock Ingram Holdings - Detailed Cautionary Announcement Relating To
The Proposed Broad-Based Black Economic Empowerment ("BEE") Transaction
(The "Transaction") To Be Undertaken By Adcock
Adcock Ingram Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number 2007/016236/06
ISIN: ZAE000123436
Share code: AIP
("Adcock")
DETAILED CAUTIONARY ANNOUNCEMENT RELATING TO THE PROPOSED BROAD-BASED BLACK
ECONOMIC EMPOWERMENT ("BEE") TRANSACTION (THE "TRANSACTION") TO BE UNDERTAKEN
BY ADCOCK
- R1.3 billion BEE transaction
- Broad-based inclusive transaction
- Adcock`s South African black employees and selected strategic partners
- R93.75 million equity contributed by strategic partners
- 10 year transaction term for strategic partners
- 7 year transaction term for qualifying employees
- 5% entry discount
- 9.5% fixed notional vendor finance rate
- Dividend reinvestment requirement on fixed percentage of dividends
received
- Facilitation cost in line with market norms
1. Introduction
In March 2009, Adcock announced its intention to facilitate the introduction
of meaningful and sustainable BEE equity participation in Adcock.
Adcock is pleased to announce the key terms of the Transaction, which will
facilitate the introduction of additional BEE equity participation in Adcock.
Adcock is committed to transformation through the introduction of broad-based
BEE equity partners into its business to add to the significant progress it
has made in the areas of, inter alia, employment equity, skills development,
preferential procurement and enterprise development. The Transaction is being
implemented as part of Adcock`s committed efforts to achieve the objectives
set out in the Department of Trade and Industry`s Codes of Good Practice ("the
Codes") and in anticipation of future requirements of a Healthcare Charter.
Adcock has concluded a detailed transaction framework agreement that will
facilitate the acquisition of an effective 13% of its issued share capital
post the Transaction by broad-based BEE groups. The Transaction will be
funded through a combination of equity from the BEE groups (other than
employees) and facilitation from Adcock and will be implemented at the Adcock
level. The intention is to issue a new class of share capital to the BEE
Participants (as defined below).
Subject to the fulfilment of the conditions precedent, listed in paragraph 8
below, Adcock intends to implement the Transaction by the end of March 2010.
2. Rationale for the Transaction
As a leading listed healthcare company in South Africa, it is Adcock`s
intention to embrace broad-based BEE equity participation as a key
transformation initiative. Adcock was guided by the following key objectives
in structuring and implementing the Transaction:
- positioning Adcock as South Africa`s leading empowered healthcare
company;
- supporting Adcock`s market position and growth strategies (in both the
public and private sectors);
- enhancing Adcock`s commitment to broad-based empowerment and
transformation;
- enhancing healthcare in South Africa;
- maximising Adcock`s equity ownership scorecard (in terms of the Codes);
and
- satisfying regulatory requirements.
3. BEE Participants
The following BEE groups will participate in the Transaction:
- Kagiso Health Consortium and Kurisani Youth Development Trust
("Kurisani") (collectively referred to as the "Strategic Partners") will
participate through one investment vehicle and will indirectly hold interests
of 7.15% and 2.60% of Adcock`s enlarged issued share capital respectively; and
- all permanent black (as defined in the Codes) employees of Adcock and its
South African subsidiaries will participate through an employee trust, which
will hold a direct interest of 3.25% of Adcock`s enlarged issued share
capital;
- (collectively, the "BEE Participants").
A diagram of the structure of the BEE Participants` shareholding in Adcock`s
enlarged issued share capital will be set out in the announcement to be
published in the press on 25 November 2009, which will also be posted on
Adcock`s website.
3.1 Strategic Partners
Adcock has selected the Kagiso Health Consortium and Kurisani as its Strategic
Partners:
3.1.1 Kagiso Health Consortium
The two shareholders of the Kagiso Health Consortium are Kagiso Trust
Investments (Proprietary) Limited ("KTI"), which owns 85.7% and Mookodi
Technologies (proprietary) Limited("Mookodi"), which owns 14.3% of Kagiso
Health Consortium. KTI and Mookodi will acquire effective equity interests of
6.13% and 1.02% of Adcock`s enlarged issued share capital respectively.
KTI is a pre-eminent empowerment business grouping in South Africa, formed in
December 1993 by the Kagiso Trust ("KT") as a vehicle for generating long-term
sustainable financial support for KT. KTI invests and manages capital for KT,
promotes the advancement of black executives and participates in the
transformation of the South African economy. As a BEE pioneer, KTI has evolved
over the past few years into a strategic investor and active shareholder. KTI
seeks to invest in businesses over which it is able to exert its expertise and
influence.
KT is a leading non-governmental organisation established in 1986 by
Archbishop Desmond Tutu, the late Dr Beyers NaudeI and other clergy of the
South African Council of Churches to finance and manage community development
grass roots projects. KT is the largest black-led independent development
agency in South Africa with national broad-based beneficiaries, the majority
of whom are rural black women. KT focuses on education, primarily funding and
overseeing the implementation of education based programmes. Its current
flagship project, the Beyers Naude Schools Development Programme ("BNSDP"),
focuses on key development projects at selected schools including
infrastructure upgrades, designing of appropriate training programmes,
curriculum and class management, development of leadership skills and sport
and cultural activity programmes. There are currently more than 21,000
learners and 1,475 educators benefitting from the BNSDP.
KT also administers the Eric Molobi Scholarship Programme ("EMSP") that funds
learners from within BNSDP who show an aptitude for maths and science and who
come from impoverished backgrounds. EMSP enables learners to attend university
to obtain degrees in fields such as science and engineering. At present, there
are 28 students in the EMSP.
Mookodi is a 100% black-owned company formed in 1999 that focuses on emerging
business opportunities in the healthcare industry. Mookodi`s primary objective
is to target business opportunities in the promotion, marketing and
distribution of pharmaceuticals, medical devices, diagnostics and disposable
supplies in the South African healthcare industry.
3.1.2 Kurisani
Kurisani is the investment arm of loveLife. loveLife is South Africa`s
national HIV/AIDS prevention campaign for young people and provides services
and outreach programmes to protect and develop young people across South
Africa. loveLife implements international best practice in behavioural change
programmes. loveLife combines well-established public health techniques with
innovative commercial marketing approaches to promote healthy living to young
people. loveLife`s programmes are implemented in partnership with the South
African Government across 850 hubs, which include 500 government clinics
across South Africa and 130 community-based non-government organisations as
well as 5,600 schools extending loveLife`s reach into towns, villages and
rural areas across the country. loveLife has management offices in 30
locations with 7,000 youth volunteers who implement loveLife`s programmes
annually and up to 100,000 youth participants per month passing through its
programmes. loveLife has evolved into one of the most significant and relevant
youth HIV/AIDS awareness and prevention efforts worldwide. Moreover, loveLife
has developed into one of the largest youth development initiative in South
Africa.
3.2 Employee participation
25% of the Transaction has been set aside for black South African employees.
All permanent black employees of Adcock and its South African subsidiaries,
including such employees who are on secondment outside of South Africa, will
be eligible to participate in the Transaction ("Adcock qualifying employees").
The total value of the Transaction is R1.321 billion, based on the 10-day
volume weighted average share price ("VWAP") of R50.91 per Adcock ordinary
share on the JSE Limited ("JSE") as at the close of trade on 19 November 2009.
Post the implementation of the Transaction, the effective participation of the
BEE Participants in Adcock will be as follows:
Number of % of Adcock % of the Market
Adcock post the Transaction value*
A-shares Transaction (Rm)
(m)
Kagiso Health 14.3 7.15 55 726.5
Consortium
Kurisani 5.2 2.60 20 264.2
Employee Trust 6.5 3.25 25 330.2
Total 26.0 13.00 100 1,320.8
*calculated using the 10-day VWAP as at close of trade on 19 November 2009
4. Transaction mechanics
The Transaction will be implemented through a specific issue of 26 million
newly created unlisted, A ordinary shares ("A-shares") (with a par value of
R0.10 each) in the issued share capital of Adcock. Whilst the A-shares will
represent a separate class of shares in Adcock they will rank pari passu in
respect of voting and dividend rights with Adcock ordinary shares and will
constitute 13% of Adcock`s total issued shares post the Transaction.
For the purposes of the Transaction, the notional value of each A-share on the
implementation of the Transaction will be deemed to be R48.36 per share, being
equal to the 10-day VWAP of an Adcock ordinary share as at the close of trade
on 19 November 2009 (R50.91) less a discount of 5% ("the Agreed Value").
4.1 Strategic Partners` participation
The key terms of the Strategic Partners` participation in Adcock are:
the term of the Transaction will be 10 years ("Transaction term"):
- for the first 7 years, the Strategic Partners will be locked-in, and will
not be entitled to trade their Adcock A-shares (or their Adcock ordinary
shares acquired through dividends received, as detailed below);
- thereafter for an additional 3 year period, the Strategic Partners will
only be entitled to sell their shares to BEE parties that have at least the
same or better "black" ownership status, as defined in the Codes;
- the Strategic Partners will contribute equity of R93.75 million ("Equity
Contribution"), which will be used to subscribe for c.1.9 million A-shares at
the Agreed Value;
- the Strategic Partners will subscribe for c.17.6 million additional A-
shares (i.e. their total equity allocation less the A-shares subscribed for
them by way of their Equity Contribution) at par value;
- during the Transaction term, the Strategic Partners will receive
dividends in respect of the A-shares from Adcock on a pari passu basis with
Adcock ordinary shares then in issue. The Strategic Partners will retain 15%
of the dividends received with the balance of the dividends received (i.e.
85%) used, on a compulsory basis, to purchase Adcock ordinary shares at the
then prevailing market price, which will also be subject to the Adcock
Strategic Partner Repurchase Right (as defined below);
- at the end of the Transaction term, Adcock will be entitled to repurchase
a certain number of A-shares (and Adcock ordinary shares, if applicable) from
the Strategic Partners (or any BEE entities, that might acquire those shares
after the initial 7 year lock-in period) at par value. The number of such
shares will be calculated in terms of a repurchase formula, so as give Adcock
a required rate of return of 9.5% nominal annual compounded semi-annually
("nacs") calculated on the Agreed Value of the A-shares acquired by the
Strategic Partners, less the Strategic Partners Equity Contribution (the
"Adcock Strategic Partner Repurchase Right");
- following the exercise by Adcock of the Adcock Strategic Partner
Repurchase Right, the remaining A-shares held by the Strategic Partners will
automatically convert into Adcock ordinary shares; and
- after the end of the Transaction term and the aforementioned repurchase,
the Strategic Partners (or any BEE entities, which might acquire those shares
after the initial 7 year lock-in period) will be entitled to retain their
remaining Adcock ordinary shares, which they will hold free of any
restrictions.
4.2 Adcock employee participation
The key aspects of the employee participation are:
- 7 year tenure to the employee participation scheme ("employee Transaction
term");
- Adcock qualifying employees will participate through an employee trust
(to be formed) (the "Employee Trust"), which will issue trust units to Adcock
qualifying employees. Each trust unit will represent a pro rata interest in
the underlying value of the shares held by the Employee Trust;
vesting of units will take place over 5 years, with 20% of allocated units
vesting annually;
- Adcock qualifying employees will be subject to a further 2 year lock-in
after the initial 5 year vesting;
- the Employee Trust will subscribe for c.6.5 million A-shares at par;
the Employee Trust will pay for the par value of its A-shares through a grant
from Adcock;
- during the employee Transaction term, the Employee Trust will receive
dividends in respect of the A-shares from Adcock on a pari passu basis
with Adcock ordinary shares then in issue. 100% of the dividends received
will be used, on a compulsory basis, to purchase Adcock ordinary shares
at the then prevailing market price, which will also be subject to the
Adcock Employee -Repurchase Right (as defined below);
- at the end of the employee Transaction term, Adcock will be entitled to
repurchase a certain number of A-shares (and Adcock ordinary shares, if
applicable) from the Employee Trust at par value. The number of such shares
will be calculated in terms of a repurchase formula, so as to give Adcock a
required rate of return of 9.5% (nacs) calculated on the Agreed Value of the A-
shares acquired by the Employee Trust ("Adcock Employee Repurchase Right");
- following the exercise by Adcock of the Adcock Employee Repurchase Right,
the remaining A-shares held by the Employee Trust will automatically convert
into Adcock ordinary shares; and
- the Employee Trust will then distribute the remaining Adcock converted
ordinary shares, after taxes have been settled, to the Employee Trust
beneficiaries who will then be entitled to trade or retain their Adcock
shares.
The manner in which qualifying employees of Adcock Ingram Critical Care
(Proprietary) Limited ("AICC") will be treated under the employee
participation scheme if Baxter Healthcare S.A. ("Baxter") and Adcock exercise
their respective call and put options in terms of the option agreement entered
into between, inter alia, Adcock, AICC and Baxter ("the Baxter option
agreement"), is still under discussion and subject to agreement with Baxter.
5. Transaction funding
The BEE Transaction will be funded as follows:
Equity Upfront Notional Value of
contribution discount vendor Adcock A-
(Rm) (Rm) finance shares
(Rm) acquired
(Rm)
Kagiso Health 68.8 36.3 621.4 726.5
Consortium
Kurisani 25.0 13.2 226.0 264.2
Employee Trust - 16.5 313.7 330.2
Total 93.8 66.0 1,161.0 1,320.8
6. Black shareholding in Adcock post the Transaction
Adcock has appointed EmpowerLogic (Proprietary) Limited, an accredited
empowerment verification agency, to conduct a preliminary scoring of its BEE
ownership initiatives in accordance with Code 100 of the Codes. It is
estimated that, post the implementation of the Transaction, Adcock will have
effective Black ownership of more than 25%, if mandated investments and
foreign operations, as defined in the Codes, are excluded from Adcock`s
enlarged issued share capital. This will result in Adcock achieving a score in
excess of 20 points in respect of the ownership element of the BEE scorecard
per the Codes.
7. Facilitation cost
The underlying cost of the Transaction to Adcock ordinary shareholders will be
calculated in accordance with the statement on share based payments in terms
of International Financial Reporting Standards ("IFRS 2"). The cost of the
Transaction will be determined once the final terms of the Transaction have
been finalised, but is expected be c.4% (as a percentage of the market
capitalisation of Adcock as at the date of this announcement). This cost of
facilitation will be charged to Adcock`s income statement. The facilitation
cost provided to the Strategic Partners will be charged as a once-off upfront
non-cash charge with the cost of the employee participation amortised over the
life of the employee participation as a non-cash charge.
8. Conditions precedent
The implementation of the Transaction will be subject to the following
conditions precedent:
- signature of the requisite legal agreements with the BEE Participants;
- the approval of Baxter pursuant to the Baxter option agreement;
establishment of the Employee Trust;
- approval by Adcock ordinary shareholders in general meeting of the
necessary special resolutions to increase the authorised share capital of
Adcock and create the A-shares;
- approval by Adcock`s ordinary shareholders in general meeting of the
resolutions required to implement the Transaction;
- obtaining an opinion from an independent expert on the creation and issue
of the A shares;
- registration by the Companies and Intellectual Properties Registration
Office ("CIPRO") of the special resolutions passed in the general meeting; and
approval of the Transaction by the JSE.
9. Circular to Adcock ordinary shareholders
A circular providing information on the Transaction and a notice convening a
general meeting of Adcock ordinary shareholders to approve the resolutions
necessary to implement the Transaction will be posted to Adcock ordinary
shareholders in due course.
10. Cautionary announcement
A further announcement will be published on SENS and in the press once the
full terms, the salient dates and the financial effects of the Transaction
have been finalised. Accordingly, Adcock ordinary shareholders are advised to
exercise caution when dealing in their Adcock ordinary shares until a further
announcement is made.
24 November 2009
Midrand
Merchant bank and transaction sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Legal advisor
Read Hope Phillips Thomas & Cadman Inc.
Communications advisor
Brunswick Group LLP
Date: 24/11/2009 07:05:25 Produced by the JSE SENS Department.
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