Enaleni - Acquisitions and further cautionary announcement
Enaleni Pharmaceuticals Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/018027/06)
(JSE code: ENL ISIN: ZAE000067740)
(`Enaleni` or `the company`)
Warning: The listing of ordinary shares in the company is on ALTx. Investors
are advised of the risks of investing in a company listed on ALTx. Investors are
advised that the JSE does not guarantee the viability or the success of a
company listed on ALTx. In terms of the Listings Requirements, the company is
obliged to appoint and retain a Designated Adviser, which is required to, inter
alia, attend all board meetings held by the company to ensure that all the
Listings Requirements and applicable regulations are complied with, approve the
Financial Director of the company and guide the company in a competent,
professional and impartial manner. If the company fails to retain a Designated
Adviser, it must make arrangements to appoint a new Designated Adviser within 10
business days, failing which the company faces suspension of trading of its
securities. If a Designated Adviser is not appointed within 30 days of its
suspension, the company faces the termination of its listing without the
prospect of an appropriate offer to minority shareholders.
ACQUISITION OF:
* CIPLA MEDPRO HOLDINGS (PTY) LIMITED (`Cipla Medpro`);
* SPECPHARM (PTY) LIMITED (`Specpharm`) AND WESTBURY GROUP (PTY) LIMITED
(`Westbury`); and
* FURTHER CAUTIONARY ANNOUNCEMENT
- Leading empowerment pharmaceutical company
- Third largest volume generic supplier in the SA private market
- Second largest tenderer of pharmaceuticals to government
- World class ARV products
- Combined turnover exceeds R750 million
- Strong pharmaceutical product pipeline
- Top ten SA pharmaceutical company
- Established Enaleni Adelaide Tambo Healthcare Bursary
1. Introduction
1.1 Shareholders are advised that, further to the cautionary announcement
dated 6 September 2005, Enaleni has entered into an agreement during
September 2005 for the acquisition of 100% of the ordinary shares in
Cipla Medpro from S.T.D. Pharma Limited and Shelsley Chemicals (Pty)
Limited (`the Cipla Medpro vendors`), for a purchase consideration of
R1.2 billion (`the Cipla Medpro transaction`).
1.2 Shareholders are further advised that Enaleni has also entered into an
agreement during September 2005 for the acquisition of 100% of the
ordinary shares in and claims against Specpharm from Terrence John Lee
(`Lee`), Peter Guy Hulett (`Hulett`) and Grant Suter Thomas (`the
Specpharm vendors`) for a purchase consideration of R15 million (`the
Specpharm transaction`). Lee and Hulett have also agreed to sell
Westbury to Enaleni for R2 million (`the Westbury transaction`).
1.3 Given the significant positive impact that the Cipla Medpro
transaction will have on Enaleni, as well as its relative size and
income contribution, Enaleni will make an application to the JSE
Limited (`JSE`) to transfer its listing to the Main Board of the JSE
after the successful implementation of the Cipla Medpro transaction.
1.4 Enaleni will change its name to Enaleni Cipla to better reflect its
status as an ethical generic company and its strong future presence in
the pharmaceutical market with the objective of extending benefits of
high quality medication to all South Africans by supplying branded
generic medicines that are equivalent to those of the innovator, but
at a considerably lower cost.
1.5 It is Enaleni`s intention, as part of the implementation of the
transactions, to increase its Black Economic Empowerment (`BEE`)
shareholding from the existing 35%, in line with the proposals of the
imminent Healthcare Sector Charter.
1.6 In accordance with Enaleni`s usual practice when acquiring successful
businesses, the management and team members of both Cipla Medpro and
Specpharm who were instrumental in the past successes of these
organisations will remain unchanged.
2. Background to Cipla Medpro
2.1 The business of Cipla Medpro, a privately owned generics
pharmaceutical business, was established in 1992 by Jerome Smith the
current Chief Executive Officer (`CEO`), with the objective of
competing in the generic pharmaceutical market in southern Africa.
2.2 Cipla Medpro has always been committed to bringing the benefits of
high quality medication to all South Africans, by supplying generic
medicines which are equivalent to those of the innovator, but at a
considerably lower cost.
2.3 The key facts regarding Cipla Medpro can be summarised as follows:
- third largest generic supplier in the South African private
market and also one of the fastest growing pharmaceutical
companies in South Africa;
- has market product leaders in various therapeutic categories,
including respiratory, cardiovascular, psychiatry, anti-
inflammatories and several others;
- has made antiretroviral (`ARV`) treatment accessible to all, and
has the potential to become the largest supplier of ARV`s into
southern Africa. Cipla Medpro currently has eleven ARV medicines
in the market place and also exports to Swaziland, Namibia and
Botswana. A further six ARV medicines are in the process of
approval at the MCC. These include the only `three-in-one` ARV
medicine in South Africa;
- is the fifth largest supplier of pharmaceutical products in South
Africa in terms of volume units sold (Source: IMS Health (Pty)
Limited (`IMS Health`)), and has achieved 40% annual growth in
sales over the past three years;
- is well represented in the supply of chronic medication, which
generates a regular annuity income stream;
- has a significant pipeline of medicines in process with the
Medicines Control Council (`MCC`), and in 2004 introduced more
new molecules than any other company in South Africa.
2.4 Cipla Limited (`Cipla India`), a 70 year old organisation, which is
ranked the number one generics pharmaceutical company in India and
Asia, is the manufacturer and supplier of most of Cipla Medpro`s
products. Cipla India supplies over 1 000 products to more than 150
countries and has formed strategic relationships in every continent.
As part of the transaction Cipla India has entered into a 20 year
exclusive supply agreement with Cipla Medpro.
2.5 All the registered product dossiers are owned and registered in the
name of Cipla Medpro or one of its group companies and registered by
the MCC.
2.6 Jerome Smith, who is well respected by the South African medical
profession, is supported by an experienced management team, with long
service at Cipla Medpro. The management team comprises Duncan
Watermeyer (Director: Regulatory), Dr Nic De Jongh (Director:
Medical), Chris Aucamp (Director: Financial) and Vanessa Liebenberg
(Director: Sales).
3. Background to Specpharm and Westbury
3.1 Specpharm is a company that focuses on niche generics. Specpharm has
a significant pipeline of generic products, some of which are due to
come off patent within the next couple of years.
3.2 Specpharm has procured products for the Tuberculosis market that will
complement the Cipla Medpro portfolio of ARV products.
3.3 Specpharm also has a range of injectibles for hospital use in both
private and state hospitals.
3.4 Westbury has exclusive current licence agreements with large
international companies. Westbury focuses on the marketing and
selling of these products to government tenders and to the private
sector in surrounding countries.
3.5 Specpharm and Westbury introduce three highly experienced executives
to the Enaleni group:
3.5.1 Terry Lee, who has over 20 years experience as the
Commercial Director of the pharmaceutical division of SA
Druggist, and more recently as the CEO of Ranbaxy South
Africa. Terry Lee has extensive experience in the sourcing
of Active Pharmaceutical Ingredients (`API`s`) worldwide and
Terry`s expertise will assist the group to remain
competitive in the tender and generic market.
3.5.2 Peter Hulett, who has extensive experience in international
pharmaceutical markets, in particular Africa, and who was
previously the Managing Director of SA Druggist
International. Peter will assume responsibility for the
international division of Enaleni.
3.5.3 Ian van der Spuy, who was previously Divisional Director of
Sandoz, a Novartis company, and prior to that CEO for 12
years of Farmitalia Carlo Erba (Pharmacia). His
responsibilities would include the creation of a specialised
hospital division within the group.
3.6 Specpharm will assist Xeragen Laboratories (Pty) Limited trading as
FirstPharm, an Enaleni subsidiary, to develop a product pipeline.
4. Terms of the Cipla Medpro transaction
4.1 The purchase consideration in terms of the Cipla Medpro transaction is
R1.2 billion and will be settled as follows to the Cipla Medpro
vendors:
- R990 million in cash through a combination of equity and debt
funding;
- R110 million of the purchase consideration will be settled to the
Cipla Medpro vendors by the issuing of Enaleni ordinary shares at
an issue price of 280 cents per share, being a premium to the
market price at the time that the Cipla Medpro transaction was
agreed;
- a deferred payment of R100 million which, if the profit before
taxation for the year to 31 December 2006 is less than R150
million, will be adjusted downwards by the percentage by which
the profit before tax is less than R150 million.
An increase in the overall purchase consideration of between R75
million to R200 million will be payable on the achievement of profits
before taxation for the year ended 31 December 2006 of over R175
million (on a sliding scale basis).
4.2 The key management and team members of Cipla Medpro will all become
shareholders in Enaleni subsequent to the transaction;
4.3 Nedbank Capital and Exchange Sponsors have been mandated by Enaleni to
source the required equity and debt funding referred to above.
Shareholders will be informed once further details of the total
funding package are known.
4.4 The effective date of the transaction is 1 November 2005. If the
purchase consideration is not paid in full by 30 November 2005,
interest will accrue from 1 December 2005 on the amount of R990
million at 7% per annum compounded monthly in arrears.
4.5 In terms of the Cipla Medpro transaction, Cipla Medpro`s management
team and all team members remain unchanged with Jerome Smith as CEO,
Duncan Watermeyer (Director: Regulatory), Dr Nic De Jongh (Director:
Medical), Chris Aucamp (Director: Financial) and Vanessa Liebenberg
(Director: Sales).
4.6 The senior and key management have entered into written employment
contracts with Enaleni incorporating restraint of trade clauses.
5. Terms of the Specpharm and Westbury transactions
5.1 The purchase consideration in terms of the Specpharm transaction is
R15 million and will be settled as follows to the Specpharm vendors:
- R7.5 million through the issue of 2 142 857 ordinary Enaleni
shares at an issue price of 350 cents each;
- the balance of R7.5 million by way of the issue of vendor shares
(`vendor shares`), which Enaleni has undertaken to place on
behalf of the Specpharm vendors, provided that Enaleni can elect
to pay such amount in cash, or partly in cash and by the issue
and placing of vendor shares.
5.2 The purchase price payable to the Specpharm vendors will increase by
R3 million if the profit after taxation for the year to 31 December
2006 exceeds R1.4 million.
5.3 The purchase consideration in terms of the Westbury transaction is R2
million and will be settled in cash.
5.4 The effective date of both the Specpharm and Westbury transactions is
31 October 2005.
6. Rationale for the acquisitions
6.1 The rationale for the Cipla Medpro, Specpharm and Westbury
transactions is inter alia as follows:
- the acquisition of Cipla Medpro will immediately elevate the
group to one of the top ten pharmaceutical companies in South
Africa with a combined annual turnover of approximately R750
million expected in the 2006 financial year and the third largest
supplier of generic medicines in volume terms in the South
African private market;
- provide affordable medicines in line with the imminent Healthcare
Sector Charter through many opportunities such as licence
agreements and joint ventures, and assist Cipla Medpro and
Specpharm to comply with their BEE objectives;
- significantly strengthen the Government tender platform of the
group by it becoming the second largest pharmaceutical tenderer
to Government, with substantial opportunities for growth;
- take advantage of the synergies between Enaleni, Cipla Medpro and
Specpharm through selling into their respective customer bases;
- Enaleni has substantial spare capacity in its Kwa-Zulu Natal
based, MCC approved pharmaceutical manufacturing facility.
Certain Cipla Medpro and Specpharm products will be manufactured
in the Enaleni manufacturing facility, resulting in substantial
savings for the newly enlarged group;
- the enlarged group is considering the cost of converting its
current local manufacturing facilities to achieve FDA (US)
standards that will allow it to supply significant ARV volumes;
- the group will have 12 pharmacists and 6 doctors focusing on new
product development and registration;
- the enlarged group will have a strong sales force of over 100
employees; and
- as a result of the enlarged group it is anticipated that the Over
The Counter (`OTC`) products of the consumer division will grow
significantly.
7. Conditions precedent to the Cipla Medpro transaction
7.1 The Cipla Medpro transaction is subject inter alia to the following
conditions precedent:
- approval of the transaction by the shareholders of Enaleni in
terms of the JSE Listings Requirements;
- approval of the transaction by the Competition Commission and/or
the Competition Tribunal, as the case may be; and
- the successful raising of the equity and debt funding.
8. Conditions precedent to the Specpharm and Westbury transactions
8.1 The Specpharm and Westbury transactions are subject inter alia to the
following conditions precedent:
- that Enaleni undertakes and concludes a successful due diligence
of Specpharm and Westbury;
- that key management enter into written employment contracts with
Enaleni (incorporating restraint of trade clauses);
- if necessary, the successful placing of the vendor shares on or
before 30 November 2005.
9. Financial effects of the transactions
The equity and debt funding has not been finalised for the Cipla Medpro
transaction and it is therefore not possible to quantify the financial
effects of the acquisition. As a result, the financial effects of the
Cipla Medpro transaction will only be announced once the funding
arrangements have been finalised. The financial effects of the Specpharm
and Westbury transactions are not material in terms of the JSE Listings
Requirements.
10. Circular to shareholders
A circular to Enaleni shareholders containing details of the Cipla Medpro
transaction and incorporating a notice of general meeting of shareholders
will, subject to approval by the JSE, be mailed to shareholders within 28
days of this announcement or within such longer period as the JSE may allow
in the circumstances. Shareholders will be notified once the Cipla Medpro
transaction becomes unconditional.
11. Further cautionary announcement
Given that the equity and debt funding has not been finalised, and that the
financial effects of the Cipla Medpro acquisition cannot be quantified as
yet, shareholders are advised that caution is still required to be
exercised by them when dealing in their securities.
Investment Bank and Joint Corporate Adviser and Arranger
Nedbank Capital
Designated Adviser and Joint Corporate Adviser and Arranger
Exchange Sponsors
Attorneys
Deneys Reitz Inc
Johannesburg
26 September 2005
Date: 26/09/2005 09:00:49 AM |