| Mon 7 Mar 2005, 11:44 | | Acquisition; Withdrawal of cautionary |
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Brimstone - Acquisition; Withdrawal of cautionary and renewal of
further 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 in respect of the acquisition by Brimstone of an
effective 20.3% interest in Afrox Healthcare Limited (`the
acquisition`), withdrawal of cautionary announcement and renewal
of further cautionary announcement
1. Introduction
Holders of ordinary and `N` ordinary Brimstone shares
(`shareholders`) are referred to the announcement released on
SENS on 17 November 2003 wherein shareholders were advised of
the offer by Business Venture Investments No. 790
(Proprietary) Limited (`Bidco`) to acquire all of the issued
shares in the share capital of Afrox Healthcare Limited
(`Ahealth`), and to numerous subsequent announcements of
African Oxygen Limited (`Afrox`), Ahealth, Bidco and Medi-
Clinic Corporation Limited (`Medi-Clinic `) regarding the
acquisition of Ahealth by Bidco. Brimstone which forms part of
the Bidco consortium pursuant to the acquisition will hold an
effective 20.3% interest in Ahealth.
Bidco has submitted an offer to acquire the entire issued
share capital of Ahealth for a cash consideration per share of
R13.85 by way of a scheme of arrangement in terms of section
311 of the Companies Act, 1973 (Act 61 of 1973), as amended
(`the Companies Act`). The cash consideration shall be
escalated at an effective rate of 5.6% per annum from 1
October 2003, being the effective date, to the scheme
operative date which is 22 March 2004. The total cash
consideration is therefore 14.99 per Ahealth share.
2. Rationale for the acquisition
During 2003, Afrox embarked on a process intended to result in
the disposal of its controlling interest in Ahealth.
Brimstone forms part of the Bidco consortium that successfully
bid for Ahealth in terms of this disposal process. Brimstone
has identified this acquisition as an opportunity to empower
Ahealth, a major healthcare asset. The investment is expected
to yield superior returns in keeping with the Brimstone
philosophy of seeking to achieve above average returns for its
shareholders.
3. The terms and conditions of the acquisition
The structure of the acquisition
Brimstone will acquire an effective economic interest of
20.3% in Bidco. Bidco will acquire 100% of the share
capital of Ahealth: See Business Day and Beeld for
diagram.
Brimstone and Mvelaphanda Strategic Investments
(Proprietary) Limited (`Mvelaphanda`) will each raise
R150 million in debt funding through a special purpose
vehicle. They will also each provide an additional R100
million in funds, bringing their respective contribution
to R250 million each and the total to R500 million,
which will be invested in BEECo1. Brimstone and
Mvelaphanda will each own 50% of BEECo1.
BEECo1 will advance this R500 million to BEECo2 and
subscribe for 95% of the issued share capital of BEECo2,
which in turn will advance the R500 million to Bidco and
subscribe for 42.7% of the issued share capital in
Bidco. As a result of the low voting rights attached to
the `N` shares held by other shareholders, BEECo2 will
control in excess of 50% of the voting rights in Bidco.
A trust representing the interests of Ahealth management
will subscribe for 5% of the shares in the capital of
BEECo2. It will also subscribe for 4.2% of the issued
share capital of Bidco and will advance an amount of R47
million to Bidco.
Other equity providers, including Afrox, will make
available to Bidco R926 million in the form of R449
million in equity and R477 million in preference share
funding. These providers will receive ordinary shares
equal to 38.1% of the issued share capital in Bidco, as
well as `N` shares representing 12% of the issued share
capital in Bidco.
Debt providers will provide additional funding of R2 122
million to Bidco, and will also acquire `N` shares
representing 3% of the issued share capital in Bidco.
The funds raised by Bidco will be used to purchase all
the issued share capital in Ahealth from Ahealth`s
existing shareholders.
The terms and conditions upon which Brimstone will
participate in Bidco as aforesaid, and the ongoing
relationship between the direct and indirect
shareholders in Bidco, are set out in a comprehensive
shareholders agreement entered into between, inter alia,
Brimstone, Mvelaphanda, Afrox, other equity providers,
BEECo1 and BEECo2.
The total required funding can be summarised as follows:
Number of Ahealth shares (`000) 227,755
Purchase price per share (Rand) 13.85
Escalation in price until 22 March 2005 1.14
(Rand)
Price per share at 22 March 2005 (Rand)* 14.99
R`m
Purchase consideration 3,414
Share options 60
Acquisition and other costs 121
Total funding required 3,595
The terms of the debt and preference share funding are
as follows:
Amount Term Rate
R`m Years %
Secured term loans 1,572 8 JIBAR (3 months)
plus 4.25
Mezzanine term 550 8 JIBAR (3 months)
facility plus 9.00
Preference share 477 8 A pre-tax rate of
funding JIBAR (3 months)
plus 9.50
3.2. Mechanics of the acquisition
Bidco will acquire all the issued share capital of
Ahealth by way of a scheme of arrangement in terms of
section 311 of the Companies Act. Brimstone will
acquire its stake in Ahealth via participation in Bidco,
as indicated in 3.1.
3.3. Purchase consideration and financing
Brimstone will pay R250 million in cash for the
effective 20.3% interest in Ahealth. It intends to fund
the acquisition via a claw-back offer of approximately
R110 million and by raising debt funding for the balance
of its funding requirement.
The claw-back offer will consist of the issue of
approximately 100 million Brimstone shares at R1.10 per
share. The claw-back offer will commence as soon as the
acquisition becomes unconditional. Brimstone has
sufficient authorised unissued shares available for this
purpose, which shares have been placed under the control
of the directors. A detailed announcement regarding
the claw-back offer will be made as soon as practically
possible. Brimstone has entered into an underwriting
agreement with Rand Merchant Bank, a division of
FirstRand Bank Limited (`RMB`) in terms of which RMB
will underwrite the claw-back offer and as a result of
which Brimstone will, on the operative date of the
acquisition, be able to make payment of this portion of
its funding contribution. The price of the claw-back
offer was based on the average of the 3 month and 6
month volume weighted average price of Brimstone as at
mid December 2004. This price was R1.22 and a normal
discount of approximately 10% was applied thereto. The
time period was selected because of the relative
illiquidity of Brimstone shares.
Brimstone has furthermore entered into a loan agreement
and related agreements with certain financial
institutions in terms of which the balance of the
funding requirement of R150 million will be made
available to Brimstone on the operative date of the
acquisition. It is Brimstone`s intention to replace
this funding arrangement with another funding
arrangement with one or more financial institutions.
Brimstone may adjust the claw-back offer pricing should
circumstances and market conditions change and agreement
be reached with the underwriters. Should the pricing of
the claw-back offer change, an announcement to this
effect will be made on SENS on or before 15 March 2005
and in the press the following day.
3.4. Details of the sellers
The sellers consist of Afrox and the minority
shareholders of Ahealth.
Warranties
3.5.1.In terms of the merger and co-operation agreement
entered into between Afrox and Bidco and pursuant
whereto Bidco proposed the scheme of arrangement
pursuant whereto it will acquire Ahealth, Afrox has
provided certain warranties and indemnities to Bidco
in connection with Ahealth and its subsidiaries.
3.5.2.In terms of the restructuring agreement entered into
on 30 November 2004 between, inter alia, Brimstone,
Mvelaphanda, Bidco, Afrox and Medi-Clinic, Brimstone
has given certain warranties and indemnities to
Afrox regarding Bidco and its assets and
liabilities, all of which are considered normal in
an acquisition of this nature.
3.2.3.In terms of the Bidco shareholders agreement,
Brimstone has given certain warranties and
indemnities to Afrox, RMB and Old Mutual Life
Assurance Company of South Africa regarding Bidco
and its assets and liabilities, all of which are
considered normal in an acquisition of this nature.
3.6. Restraints of trade
In terms of the Bidco shareholders agreement none of the
direct or indirect shareholders of Bidco, including
Brimstone, may have any material involvement or interest
in any other private hospital or similar business.
3.7. Conditions precedent
Shareholders are referred to the joint announcement by
Ahealth, Bidco, Mvelaphanda, Brimstone and African Oxygen
Limited on 3 March 2005 regarding the status of the
Competition Tribunal ruling.
In terms of the JSE Listings Requirements Brimstone`s
participation in Bidco is subject to shareholders`
approval.
4. Requisite approvals, documentation and salient dates and times
In terms of paragraph 9.22 of the JSE Securities Exchange
South Africa (`JSE`) Listings Requirements, the acquisition
requires approval by shareholders by way of an ordinary
resolution in general meeting.
A circular providing further information on the acquisition
and containing, inter alia, a notice of the Brimstone
shareholders` meeting and a form of proxy, will be posted to
Brimstone shareholders on 7 March 2005.
The salient dates and times of the shareholder`s meeting are
set out below:
2005
Last day for receipt of proxies for Friday 18 March
the shareholders`
meeting by 12:00 on
Shareholders` meeting to be held at Tuesday 22 March
12:00 on
Results of the meeting published on Tuesday 22 March
SENS on
Results of the meeting published in Wednesday 23 March
the press on
Note:
These dates and times are subject to change. Any such change
will be published on SENS and in the press.
5. Pro forma financial effects
The pro forma financial effects of the acquisition on
Brimstone are set out below and are based upon the published
unaudited results for the six months ended 30 June 2004, which
have been prepared in accordance with South African Statements
of Generally Accepted Accounting Practice.
The pro forma financial effects set out below do not
necessarily represent or indicate sustainable earnings or
future profits of Brimstone and have been prepared solely to
illustrate the effects of the acquisition.
The net asset value attributable to 20.3% of Ahealth at 30
June 2004 was R302.8 million. The net profit after taxation
and outside shareholders` interests for the six months ended
30 June 2004 attributable to 20.3% of Ahealth was R36.9
million. These Ahealth figures exclude the effect of the
acquisition on the net asset value and net profit after
taxation and outside shareholders` interests.
Column 1 Column 2
Before After Change
the the (%)
acquisit acquisit
ion ion
(cents) (cents)
Basic earnings per share(1) 7.4 5.2 (29.7)
Headline earnings per share(1) 11.2 7.3 (34.8)
Net asset value per share(2) 141.7 127.2 (10.2)
Net tangible asset value per 111.6 110.9 (0.6)
share(2)
Number of shares in issue (`000) 118 748 218 748
Weighted average number of 118 748 218 748
shares in issue (`000)
Notes:
1. Column 1 reflects the unaudited basic and headline earnings
per share for the six months ended 30 June 2004. Column 2 reflects
the effective basic and headline earnings per share for the six
months ended 30 June 2004 assuming the acquisition was effective
on 1 January 2004.
2. Column 1 reflects the unaudited net asset value per share and
net tangible asset value per share for the six months ended 30
June 2004. Column 2 reflects the effective net asset value per
share and net tangible asset value per share for the six months
ended 30 June 2004 assuming the acquisition was effective 30 June
2004.
3. No account has been taken of Capital Gains Tax and other
costs or taxes in the calculation of the pro forma financial
effects of the acquisition on Brimstone.
6. Withdrawal of cautionary and renewal of further cautionary
announcement
Further to the cautionary announcements, the most recent dated
24 January 2005, relating to the offer by Bidco to acquire all
of the issued shares in the share capital of Ahealth,
shareholders are advised that as full details of the
acquisition have been disclosed in terms of this announcement
and the circular posted to shareholders today, caution in
relation to Ahealth acquisition is no longer required to be
exercised by shareholders when dealing in their securities.
Shareholders are further advised that the other negotiations
referred to in the cautionary announcements, dated 1 November
2004 and 24 January 2005, are still in progress which, if
successfully concluded, may have a material effect on the
price of the company`s ordinary and `N` ordinary shares.
Accordingly, shareholders are advised to continue to exercise
caution when dealing in the company`s securities until further
announcements are made.
Cape Town
7 March 2005
Merchant bank and lead sponsor
Rand Merchant Bank
(A division of FirstRand Bank Limited)
Corporate Finance
Sponsor
Nedbank Capital
Independent reporting accountants
Deloitte & Touche
Chartered Accountants (SA)
