Termination of the existing Adcock BEE transaction, implementation of a new BEE transaction and withdrawal of cautionary announcement

Transcription

1 Adcock Ingram Holdings Limited Incorporated in the Republic of South Africa (Registration number 2007/016236/06) Share code: AIP ISIN: ZAE ( Adcock or the Company ) Termination of the existing Adcock BEE transaction, implementation of a new BEE transaction and withdrawal of cautionary announcement 1. Introduction Adcock ordinary shareholders are referred to the announcements by The Bidvest Group Limited ( Bidvest ) and Adcock each released on the Stock Exchange News Service ( SENS ) of the JSE Limited ( JSE ) on 23 February 2015 detailing Bidvest s proposed offer to acquire 100% of the total issued Adcock ordinary shares (excluding treasury shares) ( Bidvest Offer ), the proposed termination by Adcock of the existing black economic empowerment ( BEE ) transaction ( Existing Adcock BEE Transaction ) and the proposed creation of a new Adcock BEE transaction ( New Adcock BEE Transaction ). On 20 March 2015, Bidvest issued an offer document to Adcock ordinary shareholders ( Bidvest Offer Circular ) wherein it made an offer for all the issued Adcock ordinary shares (excluding treasury shares) not already held by Bidvest. The Adcock independent board responded to the Bidvest Offer in a document distributed to Adcock ordinary shareholders on 20 April The Bidvest Offer, to which the closing date for acceptances was initially on 8 May 2015, has been extended to 15 May The Company is in the process of preparing the Adcock scheme document ( Scheme Circular ) and the AdBEE (detailed in paragraph 3.4) placement document ( AdBEE Placement Document ) which will set out details regarding the termination of the Existing Adcock BEE transaction and New Adcock BEE Transaction and which is intended to be distributed to Adcock ordinary shareholders during or about the week commencing on 25 May Status of announcement and disclaimer In light of the fact that the Bidvest Offer will close on 15 May 2015, which is prior to the posting of the Scheme Circular and the AdBEE Placement Document, the Company wishes to release this voluntary announcement setting out certain salient details of the termination of the Existing Adcock BEE Transaction and the proposed creation of the New Adcock BEE Transaction, including the financial effects thereof as set out in paragraph 5 below. Adcock ordinary shareholders must take note that this announcement does not contain the full and final details regarding the termination of the Existing Adcock BEE Transaction and the proposed

2 creation of the New Adcock BEE Transaction and the announcement therefore cannot be regarded or relied upon as a substitute for the full Scheme Circular and the AdBEE Placement Document which will be released in due course. Whilst the Company intends to post these documents during or about the week commencing 25 May 2015 it cannot guarantee it will meet this timing (if circumstances arise which are beyond its control) nor that the transaction, if proposed, will be approved by shareholders. Adcock ordinary shareholders must accordingly not rely on this announcement in assessing the termination of the Existing Adcock BEE Transaction and the New Adcock BEE Transaction but should rather consider the full Scheme Document and AdBEE Placing Document when distributed in due course. 2. Termination of the Existing Adcock BEE Transaction 2.1 Details of the termination of the Existing Adcock BEE Transaction The Adcock board of directors ( the Board ) has resolved, subject to shareholder approval, to terminate the Existing Adcock BEE Transaction, which will require the Company to repurchase the Adcock A ordinary shares ( A Shares ) and the Adcock B ordinary shares ( B Shares ) (collectively the Repurchase ), and to replace it with a new, more sustainable BEE ownership transaction, by way of the New Adcock BEE Transaction, and in accordance with the terms set out in paragraph 3 below. As part of the termination of the Existing Adcock BEE Transaction, Bidvest wishes to acquire Adcock ordinary shares (the Dividend Shares ), representing c.1.5% of the total issued Adcock ordinary shares, from Blue Falcon Trading 69 Proprietary Limited ( Blue Falcon ) and Mpho ea Bophelo Trust ( Bophelo Trust ) which Dividend Shares were acquired using the dividends earned through the Existing Adcock BEE Transaction. The Board has agreed to release the Dividend Shares so that they may be sold to Bidvest, subject to the fulfilment of the following conditions precedent: that Bidvest makes an offer at the same price (R52 per Adcock ordinary share) to all Adcock ordinary shareholders. Bidvest has subsequently made such offer to the holders of all Adcock ordinary shares (other than the holders of treasury shares), as set out in the Bidvest Offer Circular, issued to Adcock shareholders on Friday, 20 March 2015; that Adcock ordinary shareholders approve the termination of the Existing Adcock BEE Transaction in order to enable the Dividend Shares to be released from the relevant restrictions under the Existing Adcock BEE Transaction; and the approval of the New Adcock BEE Transaction by Adcock ordinary shareholders by way of a scheme of arrangement as further set out in paragraph 3 below. In order to give effect to the Repurchase and pursuant to the termination of the Existing Adcock BEE Transaction, Blue Falcon and Bophelo Trust have each entered into agreements with the Company, in terms of which Adcock will repurchase all of the A Shares in issue from

3 Blue Falcon and all of the B Shares in issue from Bophelo Trust at a nominal price, which agreements will take effect after the implementation of the New Adcock BEE Transaction (collectively the Repurchase Agreements ). As the Repurchase constitutes in excess of 5% of each of the issued A Shares and B Shares, the provisions of sections 114 and 115 of the Companies Act, 71 of 2008 ( Companies Act ) relating to Schemes of arrangement would apply to the Repurchase. Given that there is only one holder of A Shares and only one holder of B Shares, and that the A Shares and B Shares are to be repurchased at a nominal price, the Company on the one hand and Blue Falcon and Bophelo Trust on the other hand have each agreed to waive the provisions of section 114 and 115 of the Companies Act, which waivers contained in the Repurchase Agreements, have been approved by the Takeover Regulations Panel ( TRP ). As set out above the release of the Dividend Shares is conditional upon the approval of the Adcock ordinary shareholders thereof and the concomitant termination of the Existing Adcock BEE Transaction. In terms of the Repurchase Agreements, Blue Falcon and Bophelo Trust have also undertaken not to vote their A Shares and B Shares respectively, at the general meeting and the scheme meeting. 2.2 Conditions precedent to the termination of the Existing Adcock BEE Transaction The termination of the Existing Adcock BEE Transaction is subject to the fulfillment of the following conditions precedent: the requisite regulatory approvals and/or consents and/or rulings as may be required including from the JSE and the TRP; the approval of the New Adcock BEE Transaction by Adcock ordinary shareholders by way of a scheme of arrangement as further set out in paragraph 3 below; and the approval of the termination of the Existing Adcock BEE Transaction by Adcock ordinary shareholders. 3. The New Adcock BEE Transaction 3.1 Rationale and objective for the New Adcock BEE Transaction The Board has resolved to replace the Existing Adcock BEE Transaction with the New Adcock BEE Transaction, in order to create a more sustainable BEE transaction.

4 The objective of the New Adcock BEE Transaction is to procure that Ad-izinyosi (RF) Proprietary Limited ( Ad-izinyosi ) 1, a new broad-based black empowerment entity established for the sole purpose of owning Adcock ordinary shares as part of the New Adcock BEE Transaction, will become the beneficial holder of between and Adcock ordinary shares, representing between 15% and 30% of the total issued Adcock ordinary shares, excluding treasury shares. 3.2 Salient features of the New Adcock BEE Transaction The Board will, subject to the fulfillment of certain conditions precedent (set out in paragraph 3.6), propose a scheme of arrangement in terms of section 114 of the Companies Act between Adcock and its shareholders, to which Ad-izinyosi and AdBEE are parties ( the Scheme ). In terms of the Scheme, Ad-izinyosi will, with effect from or about June 2015, acquire between 15% and 30% of the issued ordinary share capital of Adcock ( Scheme Shares ), from all the Adcock ordinary shareholders ( Scheme Participants ). Should the Scheme be implemented, the Scheme Participants will be required to dispose of, at their own election, a minimum of 15% and up to, at their election, a maximum of 30% of their Adcock ordinary shares in exchange for securities (the AdBEE Securities ) in AdBEE (RF) Limited 2 ( AdBEE ) ( Scheme Consideration ). The Scheme Shares will be acquired by Ad-izinyosi on the basis that they will not be entitled to participate in any normal and ordinary dividend distributions ( Dividend Distributions ) during the transaction period but will be entitled to any other distributions (being any distributions other than Dividend Distributions) ( Specified Distributions ), which Specified Distributions will be deemed, during the transaction period, to have been renounced by Ad-izinyosi in favour of AdBEE which will, in turn, onward renounce them to the securities holders. The maximum and minimum prices (detailed below) will be adjusted downwards on a rand-for-rand basis per Scheme Share by the amount of a Specified Distribution per Adcock share received by a securities holder (and if the distribution is in specie the value of the assets so distributed shall be determined by the auditors). As a further term of the Scheme, Adcock will grant the right to all Scheme Participants to acquire in aggregate 8 million new Adcock ordinary shares ( Adcock Options ) at a strike price of R72 per Adcock Option at a specified future date, in or about June 2019 (European option). The Adcock Options will be issued to Scheme Participants in proportion to their Adcock ordinary shares disposed of in terms of the Scheme. As part of the New Adcock BEE Transaction Ad-izinyosi shall be deemed to have delegated the obligation by Ad-izinyosi to the Scheme Participants to deliver one AdBEE Security for each Scheme Share given up by the Scheme Participants ( Ad-izinyosi Obligation ), to AdBEE in exchange for the obligation by Ad-izinyosi to pay AdBEE a calculated value per 1 Ad izinyosi is a shelf company currently known as Friedshelf 1652 Proprietary Limited (registration number 2015/066155/07) and is in the course of changing its name. 2 AdBEE is a shelf company currently known as Friedshelf 1651 Proprietary Limited (registration number 2015/054070/07) and is in the course of changing its name and converting to a public company.

5 Scheme Share at a specified future date, in or about June 2019 ( Ad-izinyosi Indebtedness ). Ad-izinyosi will secure the Ad-izinyosi Indebtedness by the pledge of the Scheme Shares to AdBEE. As a result if, prior to the specified future date, Ad-izinyosi is wound up or liquidated or deregistered and/or if it effectively loses its BEE status (and fails to timeously restore its BEE status) and/or if it breaches any provisions of a relationship agreement (to be entered into between Adcock, Ad-izinyosi and its shareholders (the Relationship Agreement ) and fails to timeously remedy such breach, AdBEE will be entitled to realise its security under the pledge which has to be used by AdBEE to settle the AdBEE Securities. The Scheme Consideration to be discharged at a specified future date, in or about June 2019 ( Specified Date ), will be determined with reference to the rolling 30-day traded volume weighted average price per Adcock ordinary share traded on the JSE immediately prior to this date, with a minimum price of R52 and a maximum price of R72 per Adcock ordinary share. The Specified Date may be extended by one year if the board of directors of AdBEE elects to do so and such extension is approved by Ad-izinyosi and by AdBEE Securities holders holding not less than 75% by market value. On the Specified Date, Ad-izinyosi will settle the Scheme Consideration to AdBEE for the benefit of the registered AdBEE Securities holders at that time, either by cash or through the return of the relevant number of Scheme Shares or a combination thereof. Any Scheme Shares owned by Ad-izinyosi after settlement of the Ad-izinyosi Indebtedness and thus the Scheme Consideration will be held for a further period of at least 4 years. Provision will be made in terms of the Scheme to take account of material adverse market conditions to protect the interests of Adcock, AdBEE and Ad-izinyosi shareholders, in that, in the event the Adcock share price drops below R36 (adjusted downwards for Specified Distributions and increases in share capital) the New Adcock BEE Transaction will be unwound, unless such unwind is waived by the AdBEE board of directors. As part of their commitment to Adcock, Blue Falcon and the Bophelo Trust will contribute meaningful capital (in the order of 15% of the net proceeds received from the disposal of the Dividend Shares referred to in paragraph 2.1) as shareholders in Ad-izinyosi. Other shareholders of Ad-izinyosi will include CIH Projects Proprietary Limited, a subsidiary of Community Investment Holdings Proprietary Limited ( CIH ) and the BDH Group Proprietary Limited ( BDH Group ). 3.3 Details of Ad-izinyosi shareholders Blue Falcon Blue Falcon comprises Kagiso Tiso Holdings, Kurisani and Mookodi: Kagiso Tiso Holdings ( KTH ) is a South African based black-owned and managed investment holding company with investment platforms in key growth

6 areas, particularly in media, and information and communications technology, healthcare and financial services, in South Africa and across Africa. KTH s key shareholders include two charitable institutions, namely Kagiso Trust and Tiso Foundation, and two South African investment companies, namely Tiso Investment Holdings and Remgro. KTH is entitled to invest directly in Blue Falcon, alternatively it may nominate one of its affiliates or another empowerment entity approved of by Adcock with no lesser empowerment credentials than KTH to invest; Kurisani, the investment arm of lovelife, is a broad-based empowerment trust which benefits lovelife and specifically the previously disadvantaged youth passing through its programmes. 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; and Mookodi has been established as an investment vehicle whose beneficiaries are more than 100 black medical doctors and other medical professionals Bophelo Trust The Bophelo Trust is a broad-based employee share ownership scheme whose beneficiaries comprise qualifying Adcock employees BDH Group The BDH Group was established in It is a black-owned investment holdings company which has investments in a variety of industries, including information and communications technology, management consulting, and retail operations CIH CIH was established in 1995 by Dr Anna Mokgokong and Mr Joe Madungandaba. It is the largest fully compliant BEE company operating in South Africa s pharmaceutical sector. The company is 100% black-owned, with operations in South Africa and sub-saharan Africa, has a proven track record and holds significant interests in the Healthcare, Technology & Telecommunication, Logistics, Mining, and Power and Energy sectors. 3.4 AdBEE. AdBEE has been established for the specific purpose of issuing the AdBEE Securities to the Scheme Participants. The AdBEE Securities will be listed on the main board of the JSE as an asset backed security in the specialist securities "asset backed securities" under the name "ADE". The proposed board of AdBEE comprises three directors, namely Mr Raphiri, Mr Makwana and Dr Lesoli who are all independent non-executive directors of Adcock.

7 The only ordinary shareholder of AdBEE is Friedshelf 1653 Proprietary Limited, which in turn has issued one ordinary share to a director of Edward Nathan Sonnenbergs Incorporated, Michael Katz. In view of the structure of AdBEE and since AdBEE will have no assets, other than the Ad-izinyosi Indebtedness which it will have to use to settle the AdBEE Securities, there is no possibility of the issued share in AdBEE ever being worth more than the nominal value thereof. In addition, one redeemable preference share has been issued to Ad-izinyosi for the purposes of enforcing the restrictive conditions imposed on it as contemplated in the section 15(2) of the Companies Act. The redeemable preference share is entitled only to a dividend of R1 in each year and will be redeemed at R1. Ad-izinyosi shall not be entitled to transfer the preference share. The preference share is not entitled to any vote, except in limited circumstances including where a resolution is proposed for a distribution of any nature to its ordinary shareholders other than as contemplated in the New Adcock BEE Transaction or the preference dividend or any redemption payment remains in arrears. AdBEE is subject to a restrictive condition pursuant to section 15(2) of the Companies Act that it shall not undertake any transactions of any nature whatsoever, other than: the participation in the New Adcock BEE Transaction, including the assumption, by way of a delegation from Ad-izinyosi of the Ad-izinyosi Obligation, in consideration of the Ad-izinyosi Indebtedness; the enforcement of the Ad-izinyosi Indebtedness; the settlement of the AdBEE Securities; the creation, issue and listing of the AdBEE Securities on the JSE; the enforcement of any guarantee for costs; and compliance with its statutory and common law obligations. The restrictive condition shall be capable of amendment only by the passing and registration of a special resolution after obtaining the requisite approval of the JSE. 3.5 Irrevocable undertakings The Bidvest Group Limited has irrevocably undertaken to vote the Adcock ordinary shares under its control at the time of the meetings in favour of the resolutions required to effect the termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE Transaction. 3.6 Conditions precedent to the New Adcock BEE Transaction The New Adcock BEE Transaction is subject to the fulfilment or waiver, if applicable, of various suspensive conditions before it becomes operative. These conditions are: in accordance with the requirements of section 114 of the Companies Act by no later than 31 August 2015:

8 Approval of the Scheme the approval of the New Adcock BEE Transaction resolution at Scheme meeting in terms of the Companies Act and, if the provisions of section 115(2)(c) of the Companies Act become applicable: the approval of the New Adcock BEE Transaction by the High Court; and if applicable, Adcock not treating the New Adcock BEE Transaction resolution as a nullity as contemplated in section 115(5)(b) of the Companies Act; and Dissenting Shareholders If there are objections by Adcock ordinary shareholders to the New Adcock BEE Transaction, then either: the number of Adcock ordinary shareholders that give notice objecting to the New Adcock BEE Transaction as contemplated in section 164(3) of the Companies Act and vote against the New Adcock BEE Transaction resolution at the general meeting does not exceed more than 5% of all of the Adcock ordinary shares; or if it does (i.e. the number of Adcock ordinary shareholders that give notice objecting to the New Adcock BEE Transaction and vote against the New Adcock BEE Transaction resolution at the Scheme exceeds 5% of all the Adcock ordinary shares), such shareholders have not exercised appraisal rights by giving valid demands in terms of sections 164(5) to 164(8) of the Companies Act, in respect of more than 5% of all of the Adcock ordinary shares within 30 business days following the Scheme meeting; the suspensive condition in this paragraph shall be capable of being waived in whole or in part in by Adcock in writing; the adoption by Adcock ordinary shareholders of the resolutions proposed at the general meeting relating to the termination of the Existing Adcock BEE Transaction to be held immediately prior to the meeting relating to the New Adcock BEE Transaction; the granting of a listing by the JSE of the AdBEE Securities, the Adcock Options and the Adcock ordinary shares that are the subject of the Adcock Options;

9 3.6.4 any other regulatory approvals, consents or rulings necessary to implement the New Adcock BEE Transaction being obtained in unqualified form, including but not limited to approvals, consents and/or rulings from the JSE, the TRP, and the Financial Surveillance Department of the South African Reserve Bank; and the signing of the relationship agreement to be entered into between Adcock, Adizinyosi and the Ad-izinyosi shareholders. 3.7 Independent expert opinion Adcock has appointed PSG Capital Proprietary Limited (the Independent Expert ) to evaluate the terms and conditions of the Scheme in accordance with section 114(3) of the Companies Act and Regulation 90 of the Companies Regulations. The Independent Expert is of the opinion that the terms and conditions of the Scheme are fair and reasonable to Adcock ordinary shareholders. 3.8 Board opinion The Board, taking into account the opinion of the Independent Expert, is of the view that the Scheme is fair and reasonable to Adcock ordinary shareholders. 4. Taxation No attempt is made in this announcement to analyse the tax consequences of the termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE Transaction, nor the impact of these transactions on Adcock ordinary shareholders. Accordingly Adcock ordinary shareholders are advised to obtain their own tax advice in order to assess the tax consequences arising from the termination of the Existing BEE Transaction and the implementation of the New Adcock BEE Transaction. 5. Pro forma financial effects The table below sets out the unaudited pro forma financial effects of the termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE Transaction on earnings per share ( EPS ), headline EPS and net tangible asset value ( NTAV ) per share based on the unaudited results of Adcock for the six-month period ended 31 December The unaudited pro forma financial effects are the responsibility of the Board and have been prepared for illustrative purposes only to provide information about how the termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE Transaction may have impacted Adcock ordinary shareholders on the relevant reporting date and because of its nature may not give a fair reflection of the Company s financial position, changes in equity, results

10 of operations or cash flows after termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE or of the Company s future earnings. The table below sets out the pro forma financial effects of the termination of the Existing Adcock BEE Transaction and the implementation of the New Adcock BEE Transaction. Published Before Pro forma After (Decrease)/ Increase 6 months ended 31 December months ended 31 December 2014 Basic earnings per share (cents) (41.2) Headline earnings per share (cents) (41.2) Distribution per share (cents) Net tangible asset value per share (cents) 1, , Number of shares in issue ('000) 168, ,423 2,571 Weighted average number of shares ('000) 168, ,366 2,571 The "Pro forma after" column assumes that: a) The termination of the Existing BEE Transaction and the implementation of the New Adcock BEE Transaction had been implemented with effect from 1 July 2014; b) The 8 million Adcock Options granted to Adcock ordinary shareholders were in issue since 1 July 2014 and will be regarded as dilutive instruments for the calculation of DEPS and DHEPS. No adjustment reflecting the cash inflow of R576 million, once the Adcock Options are exercised is included, since the Adcock Options will only be capable of being exercised in approximately 4 years time; c) The net tangible asset value calculation is effective as at 31 December 2014; d) Once-off transaction costs amounting to R11.0 million before tax will be incurred to terminate the Existing Adcock BEE Transaction and implement the New Adcock BEE Transaction; e) A non-tax deductible once-off adjustment of R12.8 million representing the acceleration of the IFRS 2 Share based payment charge relating to the termination of the Existing Adcock BEE Transaction; f) A non-tax deductible once-off adjustment of R47.7 million representing the IFRS 2 Share based payment charge in relation to the 8 million Adcock Options issued under the scheme which was valued at R5.96 per option; g) Blue Falcon Trading 69 Proprietary Limited is deconsolidated; and h) The buy-back of the "A" and "B" ordinary shares at nominal value and the purchase of the Dividend Shares by Bidvest impact shares in issue and treasury shares.

11 6. Posting of AdBEE Placement Document and the Scheme Circular Adcock ordinary shareholders are advised that Adcock intends to post the AdBEE Placement Document, setting out the details relating to the listing of the AdBEE Securities, and the Scheme Circular to Adcock ordinary shareholders during or about the week commencing on 25 May Withdrawal of cautionary announcement Following the release of certain of the salient terms of the termination of the Existing Adcock BEE Transaction and the proposed creation of the New Adcock BEE Transaction (including the issue of the Adcock Options) together with the related pro forma financial effects, Adcock ordinary shareholders are advised that the cautionary announcement is hereby withdrawn. Accordingly, Adcock ordinary shareholders are no longer required to exercise caution when dealing in their Adcock ordinary shares. Johannesburg 13 May 2015 Investment Bank, Financial Advisor and Transaction Sponsor to Adcock RAND MERCHANT BANK (A division of FirstRand Bank Limited) Legal Advisor to Adcock Edward Nathan Sonnenbergs Inc. Joint Legal Advisor to Adcock on the termination of the Existing Adcock BEE Transaction and Legal Advisor to The Bophelo Trust Fluxmans Inc. Independent Expert to Adcock PSG Capital