22nd Sep 2006 09:32
Medical Solutions PLC22 September 2006 Medical Solutions plc (the "Company" or "Medical Solutions") Proposed disposal of the Dubai based business of the Company Medical Solutions, the provider of pathology and cytology services and productsto the healthcare and pharmaceuticals sectors, today announces that it hasentered into conditional agreements to sell 100% of the issued share capital inMedical Solutions FZ LLC ("Dubai MedSol") its Dubai based pathology business foran anticipated gross consideration of £16.4 million before expenses. Summary of the transaction €83.4% of the issued share capital in Dubai MedSol will be sold to two Middle Eastern investment entities, Global Fund Company (Bahrain) EC and Global Investment House KSCC based in Kuwait, for a consideration of £12.9 million payable in cash. •The Consideration is also subject to adjustments in respect of cash and working capital balances in Dubai MedSol as at 31 August 2006 which is expected to result in an additional payment of £1.0 million to the Company. •The remaining 16.6% of the issued share capital in Dubai MedSol will be transferred to International Healthcare Holdings Limited ("IHHL"), a company controlled by Mr Sunny Varkey in full and final settlement of a debt of £2.5million owing by Medical Solutions plc to Welcare Hospital LLC and Welcare WorldHealth Systems Limited, both companies controlled by Mr Sunny Varkey. •Cash consideration is therefore expected to be approximately £13.9million before deduction of estimated expenses of approximately £1.0 million. •The Directors intend to use the expected net cash proceeds of £12.9 million to invest in the Company's UK pathology and cytology businesses. The Directors also intend to conduct a full strategic review before the end of the year. Neil Johnston, Chief Executive of Medical Solutions plc said, "In December 2004 the Board outlined a clear strategy for the future developmentof Medical Solutions that would set the company on the path to profitability.The initial benefits of this strategy were highlighted by the Group announcing amaiden profit in its interim results for the six months ended 30 June 2006. Thesale of the Dubai businesses is the latest stage in the process of ensuring thelong term success of the Company and the funds generated will enable significantinvestment in the UK pathology and cytology businesses that will form the mainfocus of operations going forward." Enquiries:Medical Solutions plcNeil Johnston, Chief Executive Officer 0115 973 9010Nick Ash, Chief Financial Officer 0115 973 9010 Bell Pottinger Corporate & FinancialGeoff Callow/Chris Hamilton 020 7861 3232 Nomura Code Securities LimitedRichard Potts 020 7776 1200 Details of the proposed sale of Dubai MedSol Introduction The Company announced today that it has conditionally agreed to dispose of thewhole of its operating business Medical Solutions FZ LLC ("Dubai Medsol") bymeans of the disposal of the entire issued share capital (the "Disposal") tothree parties: (a) 83.4 per cent. of the issued share capital of Dubai Medsol is to be sold toGlobal Fund Company (Bahrain) EC and Global Investment House KSCC, under theterms of a sale and purchase agreement for a consideration of approximately£12.9 million. The consideration may be adjusted depending on the levels of cashand working capital in the Dubai Medsol business at 31 August 2006. Based onunaudited management accounts, the board expects that the total considerationfor the 83.4 per cent. of the issued share capital of Dubai Medsol will beapproximately £13.9 million; and (b) the remaining 16.6 per cent. of the issued share capital of Dubai Medsol isto be transferred to International Healthcare Holdings Limited ("IHHL"), acompany controlled by Mr Sunny Varkey, in full and final settlement of a debt of£2.5 million owing to Welcare Hospital LLC ("Welcare Hospital") and WelcareWorld Health Systems Limited ("Welcare World Health")under the terms of a debtequity swap agreement, further details of which are set out below. Both WelcareHospital and Welcare World Health are companies controlled by Mr Sunny Varkey. Given the size of Dubai Medsol relative to the Company, the Disposal is a Class1 transaction under the Listing Rules. As such, the Disposal therefore requiresand is conditional upon the approval of the shareholders of the Company in ageneral meeting. Shareholders of the Company will be sent a circular withfurther information as soon as practicable and an extraordinary general meetingof the Company will be convened to approve the proposed disposal. Background and reasons for the Disposal Over recent months, as shown from the unaudited interim report for the periodended 30 June 2006, there has been continued improvement in the tradingperformance of the Company's UK business and its Dubai operations. In parallel,both areas of the business have been exploring opportunities to grow by organicand/or non-organic means. Whilst still at the early stages of discussions, theseopportunities would require significant additional cash investments to be madein both the UK and Dubai businesses. At present, the financial resources ofMedical Solutions are limited and the Board view the prospect of raising therequired funds as being difficult without substantial further dilution toexisting shareholders. On this basis, the Board has determined that the beststrategy to maximise value for shareholders is a planned exit from the Company'soperations in Dubai whilst raising significant cash sums for investment withinthe UK business. Post Disposal Strategy The Board intends to remain focused on the creation of a profitable, cashgenerative business centred around its core UK business streams in pathology andcytology. Over the short to medium term, the Medical Solutions group following theDisposal (the "Continuing Group") expects to broaden the range of its pathologyservice offerings, including novel molecular diagnostic tests to the UK marketand intends to invest further in its sales and marketing capability to supportsuch an initiative. The Board is also exploring different means by which itcould offer a significantly wider range of pathology-based services to UKhealthcare organisations, including the NHS, private healthcare and otherpotential customers in the pharmaceutical and biotechnology industries, a marketthe Directors believe is worth in excess of £2 billion per annum. The Board iscurrently appraising alternative means of market entry that could includeinternal investment, strategic alliance or acquisition, any of which wouldrequire initial investment out of funds raised by the Disposal. The Board alsobelieves that the Continuing Group can play a significant role in theintroduction of automated cytology to the UK. The Directors believe that themarket for automated cervical screening in England and Wales could be worth anestimated £80-£100 million per annum. The Continuing Group is currentlyco-sponsoring two trials in the UK aimed at proving the reliability and accuracyof this technology. Over the medium to long term, the Continuing Group believes that there will besignificant opportunities to generate synergies in other complementary marketssuch as genetic testing, analytical services and contract research services. TheBoard intends to remain alert to opportunities to grow the business in suchareas through organic or inorganic means. Principal terms of the Sale and Purchase Agreement Under the Sale and Purchase Agreement, which was signed on 22 September 2006,Medical Solutions has agreed to sell 83.4 per cent. of the share capital ofDubai Medsol to Global Fund Company (Bahrain) EC and Global Investment HouseKSCC. The purchase price for 83.4 per cent. of Dubai Medsol is £12,927,000. Thepurchase price is subject to certain closing adjustments based on the level ofcash and working capital within the business as at 31 August 2006. Based onunaudited management accounts, the Board expects that the total considerationfor 83.4 per cent. of the issued share capital of Dubai MedSol will beapproximately £13.9 million. The Sale and Purchase Agreement contains warrantiesgiven to the Purchasers which are usual for a transaction of this nature. TheSale and Purchase Agreement also contains certain indemnities. The Disposal, which is expected to be completed on or before 7 November 2006 isconditional, amongst other things, upon the approval of shareholders at the EGMof the Company. The parties to the Sale and Purchase Agreement shall each beentitled to terminate the Sale and Purchase Agreement if the conditionscontained therein are not met by 5.00 p.m. London time on 7 November 2006 (or such other date as the parties may agree in writing). Principal terms of the Debt Equity Swap Agreement The Company, Dubai MedSol, Welcare Hospital and Welcare World Health enteredinto an agreement dated 13 March 2006 which set out, amongst other things, theirrespective positions relating to amounts due to each other and the settlement ofamounts due to the Welcare Hospital and Welcare World Health by the transfer bythe Company of shares in the capital of Dubai MedSol equivalent to 16.6 percent. of the issued share capital of Dubai MedSol. The amounts due to WelcareHospital and Welcare World Health are in respect of deferred consideration inthe amount of £2.5 million resulting from the acquisition of Welcare PathologyLaboratory (further details of which are included below). Such agreement wasamended and re-stated by the Debt Equity Swap Agreement pursuant to which thetransfer of the 16.6 per cent. stake in Dubai MedSol by the Company isconditional on the satisfaction or waiver of all the conditions precedent setout in the Sale and Purchase Agreement. By way of a side letter to the DebtEquity Swap Agreement dated 15 September 2006, Welcare Hospital and WelcareWorld Health have instructed the Company to transfer the shares in Dubai MedSolto International Healthcare Holdings Limited. Supplementary agreements between the Company and Dubai Medsol The Company has entered into the following agreements with Dubai MedSol, at therequest of the purchasers, in order to legally transfer to Dubai MedSol certainassets that Dubai MedSol already enjoys the economic and full beneficialinterest of and to provide Dubai MedSol with a legal right to use the tradingname "Medical Solutions" following the Disposal: Business Purchase AgreementThe Company acquired the full legal and beneficial title and interests in theWelcare Pathology Laboratory from Welcare Hospital pursuant to an agreemententered into on 22 May 2003. The economic and full beneficial interest under theBusiness Purchase Agreement was transferred to Dubai Medsol upon itsincorporation on 6 October 2003. The Company then entered into a TransferAgreement to transfer legal title in the Welcare Pathology Laboratory to DubaiMedsol for a consideration of US$1. Completion of the transfer pursuant to theTransfer Agreement is conditional on the satisfaction or waiver of all theconditions precedent set out in the Sale and Purchase Agreement. Pathology Services AgreementThe Company entered into a Services Agreement relating to the outsourcing ofpathology services for Welcare Hospital on 22 May 2003. The parties to theServices Agreement, together with Dubai Medsol, entered into a NovationAgreement dated 16 August 2006 whereby the rights and obligations of the Companyunder the Services Agreement would be assigned to, and novated in favour of,Dubai Medsol. The provisions of the Novation Agreement will have effect from thedate of the satisfaction or waiver of all the conditions precedent set out inthe Sale and Purchase Agreement. Name Licence AgreementThe Company has granted to Dubai Medsol by way of a licence agreement dated 22September 2006 a perpetual, non-exclusive, royalty-free licence to use thetrading name "MEDICAL SOLUTIONS" as part of its business activities in certaincountries in the Middle East. Dubai Medsol may assign its rights under theagreement to any of its affiliates. Transaction with Mr Charles GreenMr Charles Green resigned from the Board with effect from 31 August 2006. As MrGreen was a director of the Company within the last 12 months, he is deemed tobe a related party for the purposes of the Listing Rules. The Company has agreedto pay Mr Green a bonus payment of £77,135 for the additional work he performedin preparing the way for the Dubai MedSol business to be sold. The proposedbonus payment to Mr Green is a related party transaction for the purposes of theListing Rules. Nomura Code has advised the Company that the terms of this bonuspayment are fair and reasonable so far as the Shareholders are concerned. Current trading and prospectsAs stated in the unaudited interim report for the period ended 30 June 2006, andpublished on 31 August 2006, trading within Dubai Medsol and the ContinuingGroup during 2006 has improved compared with the same period in 2005. Revenuefor the six months ended 30 June 2006 has increased by 36 per cent. to £6.8million compared with the first half of 2005. In addition, costs within bothDubai Medsol and the Continuing Group continue to be contained. The Board believes that the Continuing Group is well positioned for growth insales and an improved future financial performance. This belief is based uponthe Continuing Group's financial performance during the first half of 2006,sales forecasts for the full year, and the ongoing impact of the cost reductionplans implemented during 2005 together with the reduction in the ContinuingGroup's cost base as a result of the Disposal (excluding one-off transactionsrelating to the disposal of Dubai MedSol and the resignation of Mr Green inAugust 2006). Information on the Dubai Medsol BusinessThe Company owns the entire issued share capital of Dubai Medsol, which is aDubai-based healthcare company specialising in offering pathology based productsand services. The Directors believe Dubai Medsol is the leading independentpathology business in the United Arab Emirates. Dubai Medsol offers a broadrange of diagnostic services to local hospitals and private healthcareproviders, including clinical pathology, blood banking and general haematology,endocrinology, immunology, serology, microbiology, histopathlogy and cytology.Dubai Medsol also acts as a distributor for SurePathTM liquid based cytologyproducts in the Middle East. The operations are staffed with specialised andexperienced histopathologists, clinical pathologists, clinical biochemists andlaboratory quality managers. Following its incorporation on 6 October 2003, Dubai Medsol pursued a series ofacquisitions over the following three years which have been funded principallythrough equity issues by the Company. Dubai Medsol and its subsidiaries (the "Dubai Medsol Group") now consists of the following companies and businesses: •Welcare Pathology Laboratory •Histopathology and Specialty Laboratory ("HSL") •Dubai Medical Laboratory ("DML") •Specialised Clinical Laboratory ("SCL") Key personnel of Dubai Medsol Dr Marlon Pereira - Medical Director, Dubai Medsol Dr Pereira is the Medical Director of Dubai Medsol and the Laboratory Directorof the Welcare Laboratory. Dr Pereira joined Dubai Medsol in 2003 on theacquisition of the Welcare Hospital Laboratory from the Welcare Hospital wherehe was previously employed. He is an integral part of the management team,involved not only in the day to day laboratory operations but also indetermining the strategy of the Dubai Medsol operations in the Middle East,where he has been based for 13 years. Dr Ossama Al-Babbili - Laboratory Director, DML Dr Ossama established DML in 1982 as the first private independent clinicallaboratory in Dubai. DML provides tests for a network of over 300 clinics andhospitals in the UAE and Middle East. Dr Ossama graduated from DamascusUniversity, Syria and holds a MSc and PhD in Clinical Chemistry from TuebingenUniversity, Germany. Dr Janan Al-Zahid - Laboratory Director, SCL Dr Janan oversees the day to day laboratory operations of SCL. She is certifiedin quality control management and holds a PhD in Clinical Biochemistry. Dr Samar Hourieh - Laboratory Director, HSL Dr Samar established HSL in 2000 as the first private stand-alone histopathologyand cytology laboratory in the UAE. She is a certified Histopathologist/Cytologist and oversees the day to day operations of HSL. Financial information on the Dubai Medsol GroupFinancial Information on the Dubai Medsol Group for the six months ended 30 June2006 and the two years and 10 months ended 31 December 2005 is summarised below: Six months Year Year Ten months ended Ended ended ended 30 June 31 December 31 December 31 December 2006 2005 2004 2003 Unaudited Audited Audited Audited AED'000 AED'000 AED'000 AED'000Sales 23,796 33,208 19,969 18,584Net profit for the period/year 8,221 10,238 3,578 7,216Total assets 37,876 33,871 13,881 8,058 As at close of business on 21 September 2006 the conversion rate of AED to GBP was AED6.94:GBP 1.00. At 30 June 2006, the Company had consolidated unaudited net assets ofapproximately £17.0 million. Enquiries:Medical Solutions plcNeil Johnston Chief Executive Officer 0115 973 9010Nick Ash Chief Financial Officer 0115 973 9010 Bell Pottinger Corporate & FinancialGeoff Callow/Chris Hamilton 020 7861 3232 Nomura Code Securities LimitedRichard Potts 020 7776 1200 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SBS.L