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NTC
NTC
Netcare - Proposed transactions relating to the simplification of The Netcare
Netpartner cross shareholding structure, a conditional offer by
Netcare to the shareholders of Netpartner and withdrawal of cautionary
announcements
Network Healthcare Holdings Limited
Incorporated in the Republic of South Africa
Registration number 1996/008242/06
JSE Code: NTC & ISIN: ZAE000011953
("Netcare")
Netpartner Investments Limited
Incorporated in the Republic of South Africa
Registration number 2003/014215/06
("Netpartner")
PROPOSED TRANSACTIONS RELATING TO THE SIMPLIFICATION OF THE NETCARE / NETPARTNER
CROSS SHAREHOLDING STRUCTURE, A CONDITIONAL OFFER BY NETCARE TO THE SHAREHOLDERS
OF NETPARTNER AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS
1. INTRODUCTION
Further to the joint cautionary announcements dated 24 January 2006 and 7
March 2006, shareholders of both Netcare and Netpartner are advised of the
following proposed transactions (the "proposed transactions"), which if
implemented, will result in, inter alia:
* the cross shareholding structure which currently exists between
Netcare and Netpartner (the "Companies") being simplified; and
* Netpartner facilitating the acquisition of medical scheme
administration assets via one of Netpartner"s wholly-owned
subsidiaries ("PurchaseCo") which, it is anticipated, will become
a public company traded on the over the counter market.
2. RATIONALE
Netcare"s stated strategy is the development of an integrated healthcare
platform and to be the lowest cost provider of quality healthcare
solutions. At the centre of this strategy is Netcare"s investment in
hospital and primary care facilities as well as ancillary healthcare
businesses.
Netpartner was established as a healthcare investment holding company and a
managed care company in October 2003.
In order to assist Netpartner in achieving its objectives, the board of
directors of Netpartner has elected to pursue the acquisition of medical
scheme administration assets, including Medscheme Limited ("Medscheme") and
Rowan Angel (Proprietary) Limited ("Rowan Angel"). The implementation of
this strategy requires the simplification of the cross shareholding between
the Companies.
Netcare, as one of the founding members of Netpartner, has agreed to
facilitate Netpartner"s achievement of these objectives and in so doing to
unlock value for the Companies" shareholders going forward.
Given the following factors, the boards of directors of the Companies have
accordingly resolved that the existing cross shareholding between the
Companies be simplified, thereby enabling each company to independently
pursue its respective objectives:
* Netpartner"s stated objective of acquiring medical scheme
administration assets;
* Netcare"s desire to remain strategically neutral from a service
provider and funder point of view; and
* industry developments and the regulatory challenges Netpartner
would face in the pursuit of its stated objectives should the
cross shareholding remain in place.
The advantages of the proposed transactions to the Companies include:
* removing any potential conflicts of interest between the
Companies;
* assisting each company to focus on its core business;
* simplifying the financial and corporate structures of the
Companies;
* unlocking immediate value for the Companies" shareholders;
* providing the Netpartner Group, in its new form as PurchaseCo,
with a solid platform to enable it to develop more affordable
healthcare products and solutions to bring better care to more
people of South Africa;
* enhancing the direct Black Economic Empowerment ("BEE")
shareholding in Netcare and potentially in Netpartner;
* allowing Netcare to effectively repurchase a significant
percentage of its shares on terms that are earnings enhancing; and
* enhancing future earnings per share of Netcare as a result of the
targeted growth in earnings against a static cost of financing and
the lower number of Netcare shares in issue.
3. THE PROPOSED TRANSACTIONS
Subject to the fulfilment of the conditions precedent set out in paragraph
below, the following interdependent transactions are proposed:
3.1 Specific share repurchase by Netcare
In terms of section 85 of the Companies Act, No 61 of 1973, as amended,
(the "Companies Act") Netcare will repurchase a portion of the Netcare
shares currently held by certain Netcare subsidiaries as treasury shares
(the "specific repurchase").
As a result of this specific repurchase 116 056 221 Netcare shares, which
represent approximately 6.4% of Netcare"s issued share capital, will be
cancelled as issued shares and restored to the status of authorised but
unissued shares. The basis of implementing the specific repurchase is cash
neutral for Netcare.
3.2 Subscription for shares in PurchaseCo by Netpartner
Netpartner will procure third party funding of R470 million which it will
apply to the subscription for shares in PurchaseCo, such that it can pursue
its strategy of, amongst others, the acquisition of Medscheme and Rowan
Angel through PurchaseCo.
3.3 Distribution in specie by Netpartner
In terms of section 90 of the Companies Act, Netpartner will distribute all
of the shares it holds in PurchaseCo to the Netpartner shareholders,
including Netcare, by way of a distribution in specie as a capital
reduction on a pro rata basis. As a result of the distribution in specie,
Netcare will hold 46.3% of the PurchaseCo shares, subject to 3.5 below.
Netpartner will list all of the PurchaseCo shares on the over the counter
market in a similar manner as Netpartner shares currently trade.
3.4 Acquisition of Medscheme and Rowan Angel by PurchaseCo
By agreement between Netpartner, PurchaseCo and the existing shareholders
of Medscheme and Rowan Angel respectively, PurchaseCo will utilise part of
the proceeds from its capitalisation, as set out in paragraph 3.2 above, to
acquire the entire issued share capital of both Medscheme and Rowan Angel
from their respective shareholders.
3.5 Sale by Netcare of its 46.3% shareholding in PurchaseCo shares to third
parties
Netcare is currently in negotiations with third parties which, if
successful, will result in Netcare disposing of all or part of its 46.3%
interest in PurchaseCo immediately after the distribution in specie
referred to in paragraph 3.3 above.
The board of directors of Netpartner will, in making a recommendation to
its shareholders, take into account, inter alia, whether Netcare"s disposal
of its 46.3% interest in PurchaseCo will trigger a mandatory offer to the
remaining shareholders in PurchaseCo, whether the ultimate owner/s will be
seeking a waiver of any such mandatory offer and whether Netcare will
retain an interest in PurchaseCo.
In conducting these negotiations the board of directors of Netcare is
mindful of its responsibilities in terms of the Securities Regulation Code
on Takeovers and Mergers ("SRP Code") as well as the Competition Act, No 89
of 1998, as amended, (the "Competition Act").
3.6 Conditional offer to Netpartner shareholders and proposed scheme of
arrangement
Netcare has proposed an offer to Netpartner to acquire all the issued
shares in Netpartner not already held by Netcare (the "scheme shares") post
the distribution in specie set out in 3.3 above.
The proposed offer, which will take the form of a scheme of arrangement in
terms of section 311 of the Companies Act (the "scheme"), will be proposed
by Netcare between Netpartner and its shareholders other than Netcare (the
"scheme members").
It is proposed that the purchase price payable by Netcare for the scheme
shares will be discharged by Netcare issuing 77 653 493 new Netcare
ordinary shares to the scheme members in the ratio of one Netcare share for
every four Netpartner shares held.
In the event that the scheme is not proposed, or is not sanctioned by the
High Court of South Africa (Witwatersrand Local Division) (the "Court") for
any reason, Netcare will make a substitute offer to the shareholders of
Netpartner on the same terms and conditions as those proposed for the
scheme (the "substitute offer"). Netcare intends to invoke the provisions
of section 440K of the Companies Act, should at least nine-tenths of
shareholders of Netpartner (excluding the Netcare shareholding in
Netpartner) accept the substitute offer.
Professor M B Kistnasamy, a member of the board of directors of Netpartner
has a conflict of interest due to him sitting on the boards of directors of
both Netcare and Netpartner. Professor M B Kistnasamy has recused himself
from all Netcare board deliberations in respect of the scheme or, if
applicable, the substitute offer.
The Companies have established independent sub-committees to consider the
scheme or, if applicable, the substitute offer.
In terms of the SRP Code, the scheme or, if applicable, the substitute
offer constitutes an affected transaction and therefore requires the
appointment of an appropriate external adviser ("independent adviser") to
Netpartner to assist the board of directors of Netpartner in advising the
shareholders of Netpartner as to the fairness and reasonableness of the
scheme or, if applicable, the substitute offer.
Related party transaction
Netcare will be acquiring Netpartner shares in terms of the proposed scheme
or, if applicable, the substitute offer from parties who, in terms of
paragraph 10.1(b) of the JSE Limited (the "JSE") Listings Requirements are
considered to be related parties to Netcare.
Certain directors of Netcare, namely M I Sacks, R H Friedland, N Weltman, I
M Davis, V Litlhakanyane and J A van Rooyen are also shareholders in
Netpartner. Furthermore, P G Nelson and V L J Litlhakanyane hold options to
acquire Netpartner shares.
In addition, certain persons who were directors of Netcare within the 12
months preceding the proposed transactions, namely Dr R H Bush, Dr I Kadish
and Dr J Shevel are shareholders in Netpartner (Dr J Shevel was the Chief
Executive Officer of Netcare until his resignation in September 2005).
A non-executive director of Netcare, Professor M B Kistnasamy, is a
director of Netpartner and its Board Chairman. Where appropriate, he has
recused himself from involvement in the negotiations pertaining to the
proposed transactions.
Various personnel employed by the Netcare Group are shareholders in
Netpartner.
In terms of the JSE Listings Requirements relating to related parties,
Netcare is obliged to obtain a fair and reasonable opinion from an
independent professional expert, to be appointed in due course, on the
terms of the acquisition of the scheme shares or, if applicable, on the
terms of the substitute offer. Netcare shareholders, other than the related
parties and their associates, will be required to consider and pass an
ordinary resolution regarding acquisition of the Netpartner ordinary shares
to be acquired in terms of the scheme or, if applicable, the substitute
offer.
Netcare owns 80% of the issued share capital of Medicross Healthcare Group
(Proprietary) Limited ("Medicross"). The balance of 20% of the issued share
capital of Medicross is owned by Netpartner and will be acquired by Netcare
on the implementation of the proposed transactions.
Various shareholders, management and service-level agreements exist between
Netcare, Netpartner and Medicross. These will be cancelled on
implementation of the scheme or, if applicable, the substitute offer.
3.8 Creation and issue of preference shares by Netcare
Netcare proposes creating and issuing, by way of a private placement to
selected parties, non-redeemable, non-convertible, non-participating
preference shares (the "preference shares") not exceeding R1 billion.
Netcare may apply for the listing of the preference shares in the
"Specialist Securities" - "Preference Shares" sector of the JSE lists. The
proceeds of the issue of the preference shares, together with internal
funds and other facilities, will be used to settle the funding referred to
in paragraph 3.2 above and other third party debt in Netpartner.
SHAREHOLDING STRUCTURE
Shareholding structure before the proposed transactions
Netcare currently holds 268 191 530 Netpartner shares representing 46.3% of
the issued share capital of Netpartner and Netpartner in turn currently
holds 340 354 743 Netcare shares representing 18.7% of the issued capital
of Netcare. The current shareholding structure of the Companies setting out
the cross shareholding before the proposed transactions is set out below:
Netcare and Netpartner shareholding structure
Please refer to press announcement
4.2 Shareholding structure after the proposed transactions
Upon implementation of the proposed transactions, Netpartner will have
become a wholly-owned subsidiary of Netcare and Netpartner"s interest in
Netcare will be reflected as treasury shares. The resultant shareholding
structure after the implementation of the proposed transactions and other
ancillary transactions is set out below:
Netcare shareholding structure
Please refer to press announcement
PurchaseCo shareholding structure
Please refer to press announcement
FINANCIAL EFFECTS
5.1 Effects of the proposed transactions on Netcare
The table below sets out the pro forma financial effects of the proposed
transactions on Netcare and have been reviewed by PKF Jhb Inc., acting as
reporting accountants. The reviewed pro forma financial effects are
presented for illustrative purposes only and because of their nature may
not give a fair reflection of Netcare"s financial position or the results
of its operations after the implementation of the proposed transactions.
The pro forma financial effects are the responsibility of the Netcare
directors. It has been assumed for purposes of the pro forma financial
effects that the proposed transactions were implemented on 1 October 2004
for income statement purposes and 30 September 2005 for balance sheet
purposes.
"Before" the "After" the Change
proposed proposed (%)
transactions transactions
Earnings per 57.2 58.1 1.6
share (cents)
Headline 60.3 62.4 3.5
earnings per
share (cents)
Net asset value 231.1 207.9 (10.0) 4
("NAV") per
share (cents)
Net tangible 206.9 178.3 (13.8) 4
asset value
("TNAV") per
share (cents)
Notes:
The "before" financial information has been extracted without adjustment
from Netcare"s published financial results for the financial year ended 30
September 2005.
The reviewed "after" calculations are based on the following assumptions:
* 7 653 493 new Netcare shares were issued to acquire the scheme
shares or, if applicable, the shares to be acquired in terms of
the substitute offer;
* net cash received from the disposal of Netcare"s 46.3%
interest in PurchaseCo at estimated realisable market value
was utilised to repay current borrowings at the average
borrowing rate of 8.0% per annum (5.7% post - tax) (being
Netcare"s average borrowing rate for the year ended 30
September 2005);
* preference dividends of 7.0% (being 65% of the average prime
rate of 10.8% for the year ended 30 September 2005) have
been paid on the non-redeemable, non-convertible, non-
participating preference shares issued for an amount of R1
billion;
* the consolidation of Netpartner as a 100% held subsidiary of
Netcare;
* the cash received from the issue of preference shares
amounting to R1 billion, together with internal funds and
other facilities, was utilised to settle third party debt in
Netpartner;
* estimated costs relating to the evaluation, negotiation and
implementation of the proposed transactions (including
professional fees, publishing costs and statutory fees) of
approximately R5 million;
and
* the tax effects related to the above.
3. The above financial effects have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice. In line with
the Listings Requirements of the JSE, Netcare is formally adopting
International Financial Reporting Standards ("IFRS") with effect from 1
October 2005.
4. The reduction in NAV and TNAV per share is largely due to the debit to
equity arising from the effective repurchase of the Netcare shares held by
Netpartner in terms of the proposed transactions.
5.2 Effects of the proposed transactions on a Netpartner shareholder
The table below sets out the illustrative pro forma financial effects of
the scheme or, if applicable, the substitute offer based on the historical
and current market information of Netpartner and Netcare. The illustrative
pro forma financial effects are presented for illustrative purposes only
and because of their nature may not give a fair reflection of Netpartner"s
financial position or the results of its operations after the proposed
transactions. It has been assumed for purposes of the pro forma financial
effects that the proposed transactions were implemented on 30 September
2005 for balance sheet purposes.
"Before" "After" "After" "After" Change
1 share dividend in 0.25 1 share held (%)
held in specie shares in
Netpartner received of held in PurchaseCo
PurchaseCo Netcare 4 and 0.25
shares (3) shares held
in Netcare
Net asset 195.1 81.2 204.8 286.0 46.6%
value per
share
(cents) 1
Net tangible 194.1 81.2 204.8 286.0 47.3%
asset value
per share
(cents) (1)
Market value 205.0 81.2 204.8 286.0 39.5%
of a
Netpartner
share on 23
January 2006
(cents)
(trading day
prior to
publication
of the
cautionary)
(2)
Market value 250.0 81.2 204.8 286.0 14.4%
of a
Netpartner
share on 22
March 2006
(cents)
(trading day
prior to
publishing
this
announcement
) (2)
Notes:
The "before" financial information has been extracted without adjustment
from Netpartner"s published financial results for the financial year ended
30 September 2005.
The market value of a Netpartner share at 23 January 2006 and 22 March 2006
is the quoted closing price as per the over the counter market as provided
by Barnard Jacobs Mellet Holdings Limited;
The "after dividend in specie received of PurchaseCo shares" column
represents the value of the distribution in specie received in PurchaseCo
shares at net asset value; and
The "after 0.25 shares held in Netcare" column is based on the 30 day
volume weighted Netcare share price of R8.19 up to 22 March 2006.
6. CONDITIONS PRECEDENT
6.1 Each of the proposed transactions is conditional on each of the other
proposed transactions becoming unconditional in accordance with its terms
(save for any reference in such terms to the other proposed transactions
becoming unconditional) and being fully implemented. Accordingly, should
any of the proposed transactions not become unconditional and not be fully
implemented, each of the other proposed transactions will fail to become
unconditional.
The scheme is conditional upon Netpartner receiving a positive fair and
reasonable opinion from the independent adviser on the scheme and the board
of directors of Netpartner recommending that the scheme members vote in
favour of the scheme.
6.2 The specific share repurchase is conditional upon, inter alia, the
following conditions precedent:
* the requisite approvals being received from the JSE;
* the approval of the special and ordinary resolutions required to
authorise the specific repurchase by Netcare shareholders in
general meeting; and
* the registration of the special resolution by the Registrar of
Companies.
6.3 The subscription for shares in PurchaseCo by Netpartner is conditional
upon, inter alia, the following conditions precedent:
* the obtaining of third party funding of R470 million; and
* the passing of the ordinary resolutions required to authorise the
funding and the subscription for shares in PurchaseCo by
Netpartner shareholders in general meeting.
6.4 The acquisition of Medscheme by PurchaseCo is conditional upon, inter alia,
the following conditions precedent:
* the passing of the ordinary resolutions required to transfer
Netpartner"s rights and obligations in respect of Medscheme to
PurchaseCo by Netpartner shareholders in general meeting;
* the obtaining of the consent of the existing shareholders of
Medscheme to the transfer of Netpartner"s rights and obligations
in respect of Medscheme to PurchaseCo;
* the approval of the Competition Authorities as contemplated in the
Competition Act, insofar as may be necessary; and
* insofar as may be necessary, all other regulatory approvals or
consents necessary for the implementation of the acquisition being
obtained.
6.5 The acquisition of Rowan Angel by PurchaseCo is conditional upon, inter
alia, the following conditions precedent:
* the passing of the ordinary resolutions required to transfer
Netpartner"s rights and obligations in respect of Rowan Angel
to PurchaseCo by Netpartner shareholders in general meeting;
* the obtaining of the consent of the existing shareholders of Rowan
Angel to the transfer of Netpartner"s rights and obligations
in respect of Rowan Angel to PurchaseCo;
* the approval of the Competition Authorities as contemplated in the
Competition Act, insofar as may be necessary; and
* insofar as may be necessary, all other regulatory approvals or
consents necessary for the implementation of the acquisition being
obtained.
6.6 The distribution in specie by Netpartner is conditional upon, inter alia,
the following conditions precedent:
* the passing of the necessary resolutions by the shareholders of
Netpartner in general meeting;
* the registration of all necessary special resolutions by the
Registrar of Companies; and
* the listing of PurchaseCo shares on the over the counter market in
a similar manner as the Netpartner shares currently trade.
6.7 The scheme to be proposed by Netcare in terms of which Netcare will acquire
the scheme shares is conditional upon, inter alia, the following conditions
precedent:
* Netpartner proposing the scheme;
* the approval in general meeting of a simple majority of the
shareholders of Netcare other than the related parties and their
associates;
* the relevant number of Netcare shares being placed under the
control of the board of directors of Netcare for the settlement of
the scheme consideration;
* the approval of the Competition Authorities as contemplated in the
Competition Act, insofar as may be necessary;
* the Court granting an order convening a meeting in terms of
section 311 of the Companies Act (the "scheme meeting") of the
scheme members at which scheme meeting the scheme members will
consider and vote on the scheme;
* the scheme being approved, with or without modification, by a
majority representing not less than three-fourths (75%) of the
votes held by the scheme members, either in person or by proxy,
and voting at the scheme meeting;
* the approval of the Securities Regulation Panel ("SRP");
* the Court granting an order sanctioning the scheme in terms of
section 311 of the Companies Act and the Registrar of Companies
registering such order;
* the distribution in specie of PurchaseCo by Netpartner becoming
unconditional; and
* insofar as may be necessary, all other regulatory approvals or
consents necessary for the implementation of the scheme being
obtained, either unconditionally or subject to such conditions as
are acceptable to both Netcare and Netpartner.
6.8 The substitute offer to be made by Netcare should the scheme not be
proposed or not become operative for any reason is conditional upon, inter
alia, the following conditions precedent:
* the approval in general meeting of a simple majority of the
shareholders of Netcare other than the related parties and their
associates;
* the relevant number of Netcare shares being placed under the
control of the board of directors of Netcare for settlement of the
substitute offer consideration;
* insofar as may be necessary, the approval of the Competition
Authorities as contemplated in the Competition Act;
* the approval of the SRP;
* the distribution in specie of PurchaseCo by Netpartner becoming
unconditional; and
* insofar as may be necessary, all other regulatory approvals or
consents necessary for the implementation of the substitute offer
being obtained, either conditionally or subject to such terms and
conditions as are acceptable to the Companies.
6.9 The proposed creation and issue by way of private placing of the preference
shares by Netcare for any reason, is conditional upon, inter alia:
* the passing of the necessary special and ordinary resolutions by
the shareholders of Netcare in general meeting;
* the registration of the special resolutions by the Registrar of
Companies; and
* the successful private placement of the preference shares and JSE
acceptance of the listing (should Netcare elect to list the
preference shares).
7. APPOINTMENT OF INDEPENDENT EXPERT ADVISERS
7.1 The board of directors of Netcare is required to appoint an independent
professional expert acceptable to the JSE to provide an independent opinion
on the terms of the proposed transactions with the related parties of
Netcare.
7.2 The board of directors of Netpartner is required to appoint an independent
adviser acceptable to the SRP to advise the board on the proposed scheme
or, if applicable, the substitute offer, by Netcare, in particular as to
how it affects the minority shareholders of Netpartner.
The substance of this advice will be made known to Netcare and Netpartner
shareholders in the circulars referred to in paragraph 9 below.
8. GENERAL MEETINGS AND SCHEME MEETING
8.1 A general meeting of Netcare shareholders will be convened in order for
Netcare shareholders to consider the resolutions required to implement the
following proposed transactions:
* the specific repurchase;
* the acquisition of Netpartner shares in terms of the scheme from
the scheme members who are related parties;
* the granting of the authority to the Netcare Board to issue the
required number of Netcare shares in settlement of the scheme or
substitute offer consideration;
* the creation of the preference shares; and
* the granting of the authority to the Netcare Board to issue the
preference shares and to apply to the JSE for a listing of the
preference shares.
8.2 A general meeting of Netpartner shareholders will be convened to consider
the resolutions required to implement the proposed transactions:
* the subscription of shares in PurchaseCo by Netpartner;
* the distribution in specie of Netpartner"s entire interest in
PurchaseCo;
* the acquisition by PurchaseCo of Medscheme; and
* the acquisition by PurchaseCo of Rowan Angel.
8.3 The scheme meeting will be convened in terms of an Order of Court.
9. DOCUMENTATION
Circulars to the shareholders of both Netcare and Netpartner, containing
the full details of the proposed transactions, incorporating notices
convening the general meetings and, if applicable, the scheme meeting, and
forms of proxy, will be posted to the respective shareholders in due
course.
A further announcement will be made in due course containing, inter alia,
further details of the scheme and the salient dates applicable to the
proposed transactions.
10. WITHDRAWAL OF CAUTIONARY
The joint cautionary announcements published on 24 January 2006 and renewed
on 7 March 2006 are hereby withdrawn.
23 March 2006
Johannesburg
KPMG Services (Proprietary) Limited
Corporate Adviser to Netcare
Nedbank Capital, division of Nedbank Limited
Investment Bank, Corporate Adviser and Transactional Sponsor to Netpartner
i capital advisers
Corporate Adviser to Netpartner
HR Levin Attorneys
Legal Adviser to Netcare
Cliffe Dekker Inc.
Legal Adviser to Netpartner
Merrill Lynch South Africa (Proprietary) Limited
Lead sponsor to Netcare
PKF Jhb Inc.
Reporting Accountants to Netcare
Date: 23/03/2006 05:21:09 PM Produced by the JSE SENS Department
