| Fri 23 Apr 2010, 16:02 | | BRT/BRN - Brimstone - Terms announcement regarding the disposal of certain |
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BRT BRN
BRT
BRT/BRN - Brimstone - Terms announcement regarding the disposal of certain
interest in Life Healthcare through a series of share buybacks ("the buybacks")
and renewal of cautionary announcement
BRIMSTONE INVESTMENT CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1995/010442/06)
Share Code: BRT
ISIN Number: ZAE000015277
Share Code: BRN
ISIN Number: ZAE000015285
("Brimstone" or "the Company")
ANNOUNCEMENT REGARDING THE TERMS OF THE DISPOSAL BY BRIMSTONE OF AN ESTIMATED
EFFECTIVE 6.10% INTEREST IN LIFE HEALTHCARE GROUP HOLDINGS (PROPRIETARY) LIMITED
("LIFE HEALTHCARE") THROUGH A SERIES OF SHARE BUYBACKS ("THE BUYBACKS") AND
RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
On Monday, 8 March 2010 holders of ordinary and "N" ordinary Brimstone
shares ("Brimstone shareholders") were advised through the release of a
Securities Exchange News Service ("SENS") announcement that, following a
strategic review of Life Healthcare by its stakeholders and advisors, the
preferred route was to list Life Healthcare on the JSE Limited ("JSE").
Brimstone shareholders are referred to today`s press release by Life
Healthcare detailing its intention to list on the JSE by the end of June
2010, subject to prevailing market conditions ("the Listing"). Brimstone
shareholders are also referred to the SENS announcement released by
Mvelaphanda Group Limited ("Mvelaphanda") today.
Pursuant to the Listing and in order to create the necessary free float,
Life Healthcare intends issuing new Life Healthcare ordinary shares ("New
Life Healthcare Shares") equivalent to a minimum of 30% of its existing
shares to new investors who will participate in the Listing. As Life
Healthcare does not intend to raise additional capital through the Listing,
the proceeds received from the Listing ("Listing Proceeds") will, subject
to signature of final agreements between Life Healthcare and the existing
Life Healthcare shareholders ("Existing Life Healthcare Shareholders"), be
utilised to repurchase the same number of Life Healthcare ordinary shares
as was issued in terms of the Listing, from Existing Life Healthcare
Shareholders, including Brimstone ("Life Buyback").
Brimstone owns an effective 21.65% of Life Healthcare. 4.25% is held
directly through a wholly-owned subsidiary, Newshelf 831 (Proprietary)
Limited ("Newshelf 831") and the balance of 17.40% is held indirectly
through Business Venture Investments No 813 (Proprietary) Limited ("Bidco
813"). Newshelf 778 (Proprietary) Limited ("Newshelf 778"), a wholly-owned
subsidiary of Brimstone has a 50% shareholding in Business Venture
Investments No 931 (Proprietary) Limited ("Bidco 931") which has a 86.53%
shareholding in Bidco 813. Bidco 813 owns 40.22% of Life Healthcare.
Through the Buybacks, Brimstone will dispose of an effective stake of
approximately 6.10% in Life Healthcare.
The purpose of this announcement is to provide Brimstone shareholders with
information relating to the Buybacks and their effect on the Company.
2. Overview of Life Healthcare
Life Healthcare is a leading private hospital operator in the South African
healthcare sector with more than 25 years experience operating private
hospitals and having 27% of the domestic private hospital bed market. Its
primary business is acute private hospital care with 62 acute care
facilities and over 8,100 beds. In addition, Life Healthcare is a leading
provider of contracted on-site occupational and primary healthcare
services. Life Healthcare also owns Life Esidimeni which is South Africa`s
largest hospital public private partnership with 12 facilities and over
4,100 beds.
Life Healthcare is committed to delivering high quality healthcare across
all facilities and services with a strong focus on patient satisfaction.
Life Healthcare`s status as a preferred hospital provider to medical
schemes and employer of choice has allowed Life Healthcare to recruit and
retain doctors and key clinical personnel.
Life Healthcare`s strategy is to provide world-class, cost-effective
healthcare in South Africa and other emerging markets. Life Healthcare
plans to expand its coverage and penetration in South Africa as well as
strengthen its partnerships with government whilst engaging in healthcare
reform. Life Healthcare will look to leverage its successful business model
in select emerging markets to enable further growth.
Significant opportunities exist in the South African healthcare market with
further growth of the private healthcare market expected as new low cost
options become available covering a wider section of the employed
population.
3. The bookbuild process
The price at which the New Life Healthcare Shares will be issued will be
determined through a bookbuild process ("Bookbuild Price").
Given that the Bookbuild Price is uncertain at this stage and therefore the
proceeds to be received from the Buybacks is also uncertain, Brimstone
shareholders are asked to give the Brimstone board of directors (the
"Board") the authority to use its discretion to determine whether Brimstone
should participate in the Buybacks or not. The Board will make this
decision whilst taking into account the best interests of the Brimstone
shareholders.
All calculations in this announcement use the carrying value of Life
Healthcare as per Brimstone`s financial results as at 31 December 2009 as
the price at which the Buybacks are implemented ("Carrying Value"), however
such pricing is for illustrative purposes only.
4. The Buybacks
Please refer to Brimstone`s website for additional diagrammatic information
regarding the structure of the Buybacks at:
www.brimstone.co.za/circulars.htm
The Buybacks will consist of the following steps:
4.1 Step1 (a)
Newshelf 831 will participate in the Life Buyback by disposing of a
minimum of 30% of its 4.25% direct stake in Life Healthcare ("Newshelf
831 Buyback"). Should it dispose of 30% of its stake, its stake of
4.25% will be reduced to 2.98% and it will receive a consideration
based on the Bookbuild Price (including downward adjustments for STC
and STT) per Life Healthcare ordinary share sold ("Life Buyback
Price").
4.2 Step 1 (b)
Bidco 813 will participate in the Life Buyback by disposing of 30% of
its stake in Life Healthcare. Its stake of 40.22% will be reduced to
28.15% and it will receive, in aggregate, the Life Buyback Price per
Life Healthcare ordinary share sold plus any amount payable by Life
Healthcare to Ammed Management Trust ("Ammed Trust") indemnifying
Ammed Trust from certain costs (the "Ammed Indemnity Amount").
4.3 Step 2
Bidco 813 will utilise a portion of the proceeds received in Step 1(b)
to institute the following two specific share buybacks ("the Ammed
Trust Buyback" and the "Newshelf 779 Buyback") from its shareholders
other than Bidco 931:
a. The Ammed Trust Buyback: Bidco 813 will repurchase not less than
90% ("Ammed Buyback Percentage") of Ammed Trust`s 3.29%
shareholding in Bidco 813. Ammed Trust will receive, in
aggregate, the Life Buyback Price for every Bidco 813 ordinary
share sold plus an amount equal to the Ammed Indemnity Amount
multiplied by the Ammed Buyback Percentage; and
b. The Newshelf 779 Buyback: Bidco 813 will repurchase 100% of
Newshelf 779 (Proprietary) Limited`s ("Newshelf 779") 10.18%
shareholding in Bidco 813. Newshelf 779 will receive the Life
Buyback Price for every Bidco 813 ordinary share sold.
It is the intention and preference of Bidco 813 to repurchase Ammed
Trust`s entire shareholding in Bidco 813.
The number of issued ordinary shares in Bidco 813 equals the number of
Life Healthcare ordinary shares held by Bidco 813 prior to the Life
Buyback.
4.4 Step 3
After the Ammed Trust Buyback and the Newshelf 779 Buyback, Bidco 813
could be a wholly-owned subsidiary of Bidco 931. The balance of the
cash remaining in Bidco 813 after the Ammed Trust Buyback and the
Newshelf 779 Buyback (save for cash required to pay certain STT
liabilities in Bidco 813) will be distributed to Bidco 931 as a
dividend ("the Bidco 931 Dividend").
Not withstanding the above, to the extent that Bidco 813 has not
repurchased Ammed Trust and/or Newshelf 779`s entire shareholding in
Bidco 813 (or any of their shareholding), the balance of cash
remaining in Bidco 813 (save for the Remaining Ammed Indemnity amount
and cash required to pay certain STT liabilities in Bidco 813) may,
subject to the approval of the board, be distributed pro rata to
shareholders and Bidco 931 will, in such circumstances, receive the
Bidco 931 Dividend.
4.5 Step 4
Bidco 931 will utilise a portion of the Bidco 931 Dividend to make a
cash distribution of R180 million to each of its 50% shareholders, of
which Brimstone`s wholly-owned subsidiary, Newshelf 778 is one. All
the cash remaining in Bidco 931 will be utilised in Step 5 below
("Remaining Bidco 931 Dividend").
4.6 Step 5
Bidco 931 will utilise the Remaining Bidco 931 Dividend to institute a
specific share buyback (the "Newshelf 778 Buyback") from Newshelf 778.
The percentage of Bidco 931 shares repurchased in terms of the
Newshelf 778 Buyback will be calculated in accordance with the formula
contained in the agreement governing the Newshelf 778 Buyback.
On the basis of the Bookbuild Price being equal to the Carrying Value,
9.6% of Bidco 931`s shares will be repurchased from Newshelf 778.
4.7 Step 6
Newshelf 778 will use the proceeds received in Steps 4 and 5 to:
a. settle the funding instruments in Newshelf 778 and other funding
to the extent possible; and
b. distribute the balance of the cash received to Brimstone as a
dividend.
4.8 Final position
After the steps outlined above Brimstone will hold the following
stakes in Life Healthcare:
- 2.98% direct interest through Newshelf 831; and
- 12.57% indirect interest through Newshelf 778.
Post the Listing, those Existing Life Healthcare Shareholders who have
not sold out fully will not be allowed to trade in the balance of
their Life Healthcare ordinary shares for the duration of a lock-up
period, which will end 180 days from the date of Listing.
5. The Unbundling
Subsequent to the successful Listing and the implementation of the
Buybacks, Brimstone and Mvelaphanda intend to undertake a series of
internal restructurings that will culminate in the unbundling of certain
Brimstone and Mvelaphanda controlled entities` remaining shareholdings in
Life Healthcare to Brimstone and Mvelaphanda shareholders respectively
("the Unbundling"). Post the Unbundling, Brimstone will retain its direct
stake of 2.98% through Newshelf 831.
Brimstone shareholders will receive more information with regards to the
Unbundling in due course, and will be asked for their approval at a future
date.
6. Rationale for the Buybacks
The rationale for Brimstone participating in the Buybacks can be summarised
as follows:
- facilitates the free float requirement for Life Healthcare being met
pursuant to the Listing;
- enables Brimstone to settle its current funding obligations in
relation to its investment in Newshelf 778 as well as other funding
obligations to the extent possible; and
- facilitates the restructuring of Brimstone`s complicated funding and
holding structure in Life Healthcare that will be required for
purposes of the Unbundling.
7. Conditions precedent to the Buybacks
As of today, all the conditions precedent below are outstanding.
Conditions precedent to the Newshelf 831 Buyback:
- the board approves the Newshelf 831 buyback on the basis that the
price received is in the best interests of Brimstone
Shareholders.
- Life Healthcare lists on the JSE before the end of June 2010 and
is contractually obliged to effect the Life Buyback;
- Brimstone shareholder approval for the Newshelf 831 Buyback is
obtained by 15 May 2010; and
- Nedbank Limited ("Nedbank") and Depfin Investments (Proprietary)
Limited ("Depfin"), as lenders to Newshelf 831, consenting in
writing to the implementation of the Newshelf 831 Buyback.
Conditions precedent to the Newshelf 778 Buyback:
- the Brimstone board approves the Newshelf 778 Buyback on the
basis that the price received is in the best interests of
Brimstone shareholders.
- Life Healthcare lists on the JSE before the end of June 2010 and
is contractually obliged to effect the Life Buyback;
- Brimstone shareholder approval for the Newshelf 778 Buyback is
obtained by 15 May 2010;
- the successful implementation of both the Ammed Trust Buyback
Agreement and the Newshelf 779 Buyback Agreement (unless Newshelf
778 and Bidco 931 agree to waive fulfilment of that condition);
- the Bidco 931 Dividend is declared and paid;
- the cash distribution of R180 million is paid to each of Newshelf
776 (Proprietary) Limited and Newshelf 778 by Bidco 931;
- a special resolution of Bidco 931 shareholders -
- authorising the specific buyback of Bidco 931 ordinary
shares in terms of the Newshelf 778 Buyback;
- sub-dividing each ordinary share in the share capital of
Bidco 931 having a par value of R1 each, into one million
ordinary shares of R0.000001 each;
- subsequent to the subdivision referred to above, converting
100,000,000 ordinary shares in the authorised but un-issued
share capital of Bidco 931 having a par value of R0,000001
each into 100,000,000 A Ordinary Shares having the rights,
terms and conditions set out in the articles of association
of Bidco 931;
- amending the memorandum and articles of association of Bidco
931 to reflect the new capital structure of Bidco 931
pursuant to the sub-division and conversion referred to
above;
- amending the articles of association of Bidco 931 to
incorporate an article setting out the terms attaching to
the A Ordinary Shares in the share capital structure of
Bidco 931,
is passed by the shareholders of Bidco 931 in general meeting and is
registered by the Companies and Intellectual Property Registrations
Office in Pretoria;
- the shareholders of Bidco 931 shall have authorised its
directors, by way of a specific authority in terms of section 221
of the Companies Act, to allot and issue the same number of A
Ordinary Shares to Newshelf 778 that equate to the number of
ordinary shares being repurchased by Bidco 931 from Newshelf 778;
- the board of directors of Bidco 931 making a written declaration
that the implementation of the Newshelf 778 Buyback will not
result in Bidco 931 being in breach of the liquidity and solvency
requirements set out in section 85(4) of the Companies Act, 1973;
- each of the Industrial Development Corporation, Nedbank and
Depfin consenting in writing to the implementation of the
Newshelf 778 Buyback; and
- Brimstone, and/or a wholly-owned subsidiary thereof, and
Mvelaphanda, and/or a wholly-owned subsidiary thereof, shall have
entered into a written agreement in relation to the consolidation
of various of their remaining interests in Life Healthcare into a
vehicle whose shares are intended to be listed as asset backed
securities on the investment product sector of the main board of
the JSE
8. Pro forma financial effects and information contained in the comprehensive
legal agreements
Based on Brimstone`s published audited consolidated results for the
financial year ended 31 December 2009, the pro forma financial effects of
the Buybacks on Brimstone`s earnings and headline earnings per share ("EPS"
and "HEPS", respectively) and net asset value and net tangible asset value
per share ("NAV" and TNAV", respectively) are set out below. The pro forma
financial information has been prepared for illustrative purposes only and
because of its nature may not give a fair presentation of Brimstone`s
financial position or the effect and impact of the Buybacks on Brimstone.
The financial effects are the responsibility of the Board. The material
assumptions used in the preparation of the financial effects are set out in
the notes following the table.
Before After % change
the the
Buybacks Buybacks
EPS (cents) 136.7 161.1 17.8%
HEPS (cents) 130.9 155.3 18.6%
NAV (cents) 1,030.3 1,065.7 3.4%
TNAV (cents) 922.1 957.5 3.8%
Number of shares in issue (`000) 239,324 239,324 -
Weighted average number of shares in 238,238 238,238 -
issue (`000)
Notes:
1. The "Before the Buybacks" information has been extracted, without
adjustment, from Brimstone`s consolidated audited historical financial
information for the 12 months ended 31 December 2009.
2. The above pro forma financial effects are based on the assumption that
Brimstone disposes of an effective 6.10% of Life Healthcare through
the Buybacks. Part of this will be as cash received from the Newshelf
778 Buyback, and the remaining cash will be received as a separate
dividend of R180m from Bidco 931. Prior to the Buybacks, Brimstone
held 21.65% of Life Healthcare as a fair value investment through
profit or loss. After the Buybacks, Brimstone will have decreased its
effective interest in Life Healthcare to 15.55%. Life Healthcare will
continue to be accounted for as a fair value investment through profit
or loss.
3. In order to provide indicative pro forma financial effects of the
Buybacks, it has been assumed for purposes of these calculations that
the Buybacks were effected at Brimstone`s Carrying Value for its then
21.65% investment in Life Healthcare at 31 December 2009 of R2,823m.
Further to this, no profit or loss is realised on the Buybacks. If the
Buybacks are effected at above or below the Carrying Value, a related
profit or loss on the Buybacks will be realised.
4. The Buybacks of R835m (based on the book value of Brimstone`s
investment in Life Healthcare at 31 December 2009 and including a
separate dividend received from Bidco 931 of R180m) received as a cash
dividend by Brimstone of R759.1m (net of STC) and the related STC
credit accounted for as a deferred tax asset of R75.9m (non-
recurring).
5. The EPS and HEPS figures as reflected in the "After the Buybacks"
column are based on the assumption that the Buybacks were implemented
on 1 January 2009 for the purposes of the statement of comprehensive
income.
6. The EPS and HEPS figures were adjusted for the after tax effect (where
applicable) of:
- a reduction in the amount of dividends received over the period
by Brimstone from Life Healthcare amounting to R47.6m
(recurring);
- a reduction in taxation through the release of R115.1m of
deferred tax that was over-provided for on Brimstone`s investment
in Life Healthcare(non-recurring), STC credit of R75.9m on
dividends received and a R7.7m tax charge in respect of
adjustments to dividends and finance costs;
- a reduction in finance costs of R28.8m due to the settlement of
long-term funding (see note 9, below)(recurring);
- an impairment of the investment in Life Healthcare due to the STC
incurred on the Buybacks and not received as cash of R75.9m (non-
recurring);
- no adjustment is recorded on the fair value gain of Life
Healthcare for the period, as the gain booked on the sale of the
effective 6.10% of Life Healthcare at the year end carrying value
would have been booked as a fair value gain if the Buybacks had
not occurred; and
- transaction costs of R30.4m which are non-deductible for income
tax purposes (non-recurring).
7. The NAV and TNAV figures as reflected in the "After the Buybacks"
column are based on the assumption that the Buybacks were implemented
on 31 December 2009 for the purposes of the statement of financial
position.
8. The NAV and TNAV figures were adjusted for:
- transaction costs of R30.4m which are non-deductible for income
tax purposes; and
- a reduction of the deferred tax liability of R115.1m that was
over-provided for on Brimstone`s investment in Life Healthcare
(non-recurring);
9. It has been assumed that Brimstone will utilise any cash proceeds
received from the Buybacks to settle any long-term funding in Newshelf
778 held against the investments in Life Healthcare.
9. Action required by Brimstone shareholders and general meeting
In terms of the JSE Listings Requirements and using the Carrying Value, the
Buybacks will be categorised as a Category 1 transaction. A circular was
posted to Brimstone shareholders today providing information on the
Buybacks, and incorporating a notice convening a general meeting of
Brimstone shareholders ("general meeting") to be held at 10h00 on Monday,
10 May 2010, at The Athenaeum, Boundary Terraces, No 1 Mariendahl Lane,
Newlands, Cape Town.
The circular is also available on Brimstone`s website at:
www.brimstone.co.za/circulars.htm
Shareholders attending the general meeting or represented by proxy will be
required to vote on the resolutions to approve the Buybacks and to place
the authority in the hands of the Board to use its discretion to determine
whether Brimstone should participate in the Buybacks or not. The
resolutions require at least 50% approval by Brimstone shareholders.
10. Salient dates and times
2010
Forms of proxy for the general meeting to be Thursday, 6 May
received by 10h00 on
General meeting held at 10h00 on Monday, 10 May
Results of the general meeting announced on SENS Monday, 10 May
on
Results of the general meeting published in the Tuesday, 11 May
South African press on
Note:
1. All times shown above are South African times.
2. The above dates and times are subject to amendment. Any such
amendment will be announced on SENS and published in the South African
press.
11. Irrevocable letters of undertaking
Brimstone directors and other Brimstone shareholders, who collectively hold
approximately 38% of the Brimstone voting rights, have provided irrevocable
letters of undertaking to vote in favour of the resolutions necessary to
approve the Buybacks to the extent that the implementation of the Buybacks
will be to the benefit of Brimstone shareholders.
12. Renewal of cautionary announcement
Brimstone shareholders are referred to the cautionary announcement dated
Monday, 8 March 2010 and are advised that they should continue to exercise
caution when dealing in Brimstone shares.
Cape Town
23 April 2010
Investment bank and sponsor
Legal advisers
Nedbank Capital
(LOGO)
Edward Nathan Sonnenbergs
(LOGO)
Independent reporting accountants
Transaction communications advisor
Deloitte & Touche
(LOGO)
College Hill
(LOGO)
Independent sponsor
Structuring adviser
Deutsche Securities
(LOGO)
Rand Merchant Bank
(LOGO)
Date: 23/04/2010 16:02:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
