1. INTRODUCTION
The Board of Directors of MGRC (Board) wishes to announce that a 50:50 joint venture company of MGRC and Ajmaks Sdn. Bhd. ("AJMAKS"), MPath Sdn Bhd (MPath or the Buyer), had on 19 July 2012 agreed to the terms and entered into a conditional sale and purchase agreement for shares (Shares SPA), for the acquisitions of:
i) up to 2,100,000 ordinary shares of RM1.00 each representing 70% of the total issued and paid-up share capital of Clinipath (Malaysia) Sdn Bhd (CM) for a cash consideration not exceeding the sum of RM13,140,000 together with the amount of any long outstanding debts of CM recovered after the completion date.
ii) 90,000 ordinary shares of RM1.00 each representing 100% of the total issued and paid-up share capital of Clinipath Capital Sdn Bhd (CC) for a cash consideration of RM150,000; and
iii) 2 ordinary shares of RM1.00 each representing 100% of the total issued and paid-up share capital of Medical Scan Sdn Bhd (MS) for a cash consideration of RM10,000.
(CM, CC and MS are collectively known as the Clinipath Group) (Proposed Acquisitions of Clinipath Group).
Further, one of the conditions precedent of the Shares SPA is the entry into by the Buyer, of a conditional sale and purchase agreement for property at a later date (Property SPA) to acquire the Property for a cash consideration of RM2,300,000 (Proposed Acquisition of Property).
(collectively known as the Proposed Acquisitions)
2. THE PROPOSED ACQUISITIONS
2.1 Salient Terms of the Shares SPA
2.1.1 The Consideration has been agreed to by the parties as the aggregate of the following:
(a) A reserve valuation of RM8,240,000; and
(b) A maximum of RM5,060,000 shall be paid as a profit incentive where Clinipath achieves a profit before tax (PBT) of up to RM2,200,000 as determined by a Special Audit as at 31 October 2012.
2.1.2 The date of completion (Completion Date) shall occur within 14 days after all the conditions precedent to the sale of shares have been met or waived. The following represents the additional requirements to the conventional/customary conditions precedent to completion under the Shares SPA:
(a) an agreement has been entered into with the Buyer, in form and substance satisfactory to the Buyer, for the sale and purchase of the Property;
(b) each shareholder of CM (other than those who are original parties of the Shares SPA and Azalea Holdings Pty Ltd) shall have entered into an Accession Deed by which they shall be joined as parties to the Shares SPA and agree to sell those shares in CM which are set out against their names in Section 2.3 below;
(c) satisfactory completion of the legal due diligence currently on-going as at the date of this announcement;
(d) the delivery of audited accounts for CM, CC and MS for the period ending 31 October 2011;
(e) the approval of the shareholders of the Buyer ;
(f) all regulatory and other approvals required by applicable law or the ACE Market Listing Requirements (AMLR) of the Bursa Malaysia Securities Berhad (Bursa Securities) shall have been obtained.
2.1.3 (a) The Consideration shall be paid into a settlement account for the benefit of those sellers of shares in CM who become parties to the Shares SPA by accession on the Completion Date. The Consideration of those sellers of shares in CM who are original parties to the Shares SPA (the Original CM Sellers) shall be payable in three separate payments the first of which (First Payment) shall be made by the Buyer on the Completion Date, the second of which (Second Payment) shall be made on the date of commencement of the Special Audit as notified by the Expert (as hereinafter defined) to the Original CM Sellers, the Buyer and the Escrow Agent (as hereinafter defined) and the third of which (Third Payment) shall be made within thirty (30) days after the Special Audit Accounts have been prepared and circulated to the Original CM Sellers and the Buyer and a certificate by the Expert of the amount of the Third Payment has been delivered by the Expert to the Escrow Agent, the Original CM Sellers and the Buyer.
The Expert means Ernst & Young who are to be appointed under the Shares SPA to conduct the Special Audit on the Clinipath Group and in connection therewith to prepare the Special Audit Accounts on the basis of which the amount of the Third Payment will be derived.
The Escrow Agent means Cheong Kee Fong & Co, a firm of advocates and solicitors. One of the conditions precedent to completion is that the Original CM Settlers, the Buyer and the Escrow Agent will enter into an Escrow Agreement under which an escrow amount will be paid by the Buyer to the Escrow Agent on completion and deposited by the Escrow Agent into an escrow account from which payments by way of the Second Payment and the Third Payment will be transferred from the Escrow Account to a Settlement Account to be opened and maintained for the benefit of the Original CM Sellers. Any credit balance in the Escrow Account after such transfers shall be paid to the Buyer.
(b) A deposit on the Property shall be paid on the date of execution of the Property SPA and the balance thereof shall be paid on the Completion Date.
2.1.4 The maximum consideration payable shall not exceed RM15,600,000 which shall include the consideration for the Property for the amount of RM2,300,000,
2.2 Basis and Justification of Arriving at the Purchase Consideration
While the Proposed Acquisitions comprise several assets including the Property, the main basis for valuation was arrived at after taking into consideration the earnings of the assets to be acquired as a whole, as MPath would acquire the assets and operate them collectively as a whole on a going concern basis. The Board took into consideration amongst others:
- The Boards estimation of aggregate profit after tax of CM, CC and MS for financial year ending 31 October 2012 attributable to equity stakes proposed to be acquired by MPath, which translates to a net price to earning (PE) multiple of 8.4 times for the Purchase Consideration inclusive of the price of the Property and 7.1 times for the Purchase Consideration exclusive of the price of the Property;
- The aggregate net asset values of CM, CC and MS as at end-January 2012 attributable to equity stakes proposed to be acquired by MPath of RM6,294,000 and the open market value of the Property as at 25 April 2012 as determined by an independent valuation by Messrs Jones Lang Wootton of RM2,400,000;
- The PE multiple of Sonic Healthcare Ltd (Sonic), a company listed on the Australian Stock Exchange (ASX) of 16.45 times as at 18 June 2012. Sonic offers laboratory-based services and also has a 30% interest in the shares of Clinipath through Azalea Holdings Pty Ltd. The Board noted that whilst there are companies listed on Bursa Securities involved in healthcare, no suitable peer could be identified which is principally involved in laboratory-based services;
- The financial performance, earnings potential and future prospects of Clinipath; and
- The potential synergies and benefits arising from the Proposed Acquisitions, to MGRC.
2.3 Information on Clinipath (Malaysia) Sdn Bhd, Clinipath Capital Sdn Bhd and Medical Scan Sdn Bhd
CM
Clinipath Malaysia Sdn Bhd (Company No 248187-W) is a private company limited by shares incorporated in Malaysia with an authorised share capital of RM5,000,000 divided into 5,000,000 ordinary shares of RM1.00 each of which 3,000,000 ordinary shares have been issued and are fully paid or credited as fully paid amounting to RM3,000,000 and registered in the names of the persons whose names are set out below in the numbers set out against their respective names:
Name Of Shareholders / (Vendors) | Number Of Shares Held | % |
Frederick Chee How Chai | 1,110,000 | 37 |
Haji Yusof @ Josree Bin Hj Yacob | 450,000 | 15 |
Asiah @ Norasiah bin Hj Osman | 165,000 | 5.5 |
K.C.Puviyarasi a/p K M Cholan | 150,000 | 5 |
Nik Azizah Binti Wan Kadir, Dr | 100,000 | 3.33 |
Mohd Shahdan Bin Shahid | 10,000 | 0.33 |
Kunamalar a/p Krishnan Sabapathy | 45,000 | 1.5 |
Nor Ashikin Binti Ahmad Mokhtar, Dr | 5,000 | 0.17 |
Azalea Holdings Pty Ltd | 900,000 | 30 |
Muhammad Abdul Jamil Bin Mohammad Yassin | 5,000 | 0.17 |
Zainudin bin Md Zin, Dr | 50,000 | 1.67 |
KlinikFamili TTDI Sdn Bhd | 10,000 | 0.33 |
Total | 3,000,000 | 100 |
CM carries on the business of providing pathological and medical laboratory services.
CC
Clinipath Capital Sdn Bhd (Company No. 315055 - P) is a private company limited by shares incorporated in Malaysia with an authorised share capital of RM100,000 divided into 100,000 ordinary shares of RM1.00 each of which 90,000 ordinary shares have been issued and are fully paid amounting to RM90,000 and registered in the names of the following persons in the numbers set out against their respective names:
Name Of Shareholders / Vendors | Number Of Shares Held |
Lee Yung Kuong | 45,000 |
Frederick Chee How Chai | 45,000 |
CC carries on the business of renting out commercial properties.
Medical Scan Sdn Bhd (Company No. 306746) is a private company limited by shares incorporated in Malaysia with an authorised share capital of RM100,000 divided into 100,000 ordinary shares of RM1.00 each of which 2 ordinary shares have been issued and are fully paid up amounting to RM2.00 and registered in the names of the following persons in the numbers set out against their respective names:
Name Of MS Shareholders / Vendors | Number Of Shares Held |
Lee Yung Kuong | 1 |
Frederick Chee How Chai | 1 |
MS carries on the business of providing laboratory services.
2.4 Information on the Property
The Property is held under GRN 283972 and known as lot 42562 Section 24 Bandar Klang on which there is a renovated four-and-a-half storey semi-detached office. The Property has a total land area of 3,672 square feet with an interest in perpetuity (freehold) tenure. It bears the postal address No. 19, Empire Galeri, Jalan Empayar/KU1, Off Persiaran Sultan Ibrahim, 41050 Klang, Selangor Darul Ehsan. This three-and-a-half year old building has a gross floor area of 8,825 square feet and net lettable area of 7,527 square feet.
The premise is currently rented to CM, and is fully utilised for its laboratory and administrative operations, and will continue to serve the same purpose post-acquisition. The net book value of the Property is not available as its ownership is currently held by individuals. An independent property valuation exercise has deemed the Property have an open market value of RM2.4 million as described in Section 2.2(e)(iv) above. The Property is currently under a charge registered by Public Bank Berhad on 11 June 2010. The registered proprietors of the Property are Frederick Chee How Chai and Lee Yung Kuong.
2.5 Information on the Vendors who are parties to the Shares SPA and the Property SPA
The following are the Original CM Sellers:-
i. Frederick Chee How Chai
ii. Haji Yusof @ Josree Bin HjYacob Lee Yung Kuong
Frederick Chee How Chai and Haji Yusof @ Josree Bin Hj. Yacob are sellers of all those shares in CM legally and beneficially owned by them..
Frederick Chee How Chai and Lee Yung Kuong are sellers of all those shares in CC legally and beneficially owned by them.
Frederick Chee How Chai and are sellers of all those shares in MS legally and beneficially owned by them.
Frederick Chee How Chai and Lee Yung Kuong are sellers of the Property legally and beneficially owned by them.
Insofar as the Board is aware, none of the Directors and/or major shareholders of MGRC and/or person(s) connected with a Director or major shareholders of MGRC is related to the Vendors.
2.6 Source of Funding
The Proposed Acquisitions shall be financed by cash contributions from the shareholders of MPath, namely MGRC and AJMAKS, in the form of shareholder advances and/or a subscription for shares in MPath on an equal basis and/or commercial loans.
As at the date of this announcement, the proportion between the above-mentioned sources of funding to finance the Proposed Acquisitions has not been determined.
2.7 Liabilities to be Assumed
Insofar as the Board is aware save for the liabilities which may arise from shareholders advances and/or commercial loans referred to in section 2.6 above, there are no liabilities to be assumed by MPath following the Proposed Acquisitions.
2.8 Estimated Additional Financial Commitment
Clinipath Group will be acquired with its operations intact and as a going concern. Therefore, the Directors of MGRC do not foresee any immediate requirement for any additional financial commitment to put the business of Clinipath Group on-stream.
2.9 Estimated Time Frame for Completion
Barring any unforeseen circumstances, the Proposed Acquisitions are expected to be completed no later than six (6) months and fourteen days (14) from the date of signing of the Shares SPA.
2.10 Rationale
The Proposed Acquisitions represent the continuing efforts of the MGRC Group to seek investment opportunities that will enhance its competitiveness and broaden its capabilities in its core competencies.
CM is an established provider for pathology and medical laboratory services in Malaysia. With operations in eighteen branches nationwide, CM serves a comprehensive list of health professionals, private medical centres, hospitals and corporate bodies. In addition to its main laboratory in Klang, Selangor, the company also provides in-house laboratory management services to several clients. CM laboratories are accredited with ISO 15189:2007, which embodies the quality management system requirements specifically for medical laboratories. Through shareholding in the company by Azalea Holdings Pte Ltd, CM is affiliated with Sonic, one of the worlds largest medical diagnostics companies and listed on the ASX.
Significant progress in the science of genomics has led to the emergence of advanced molecular screening and diagnostics technologies, which enable the development and provision of highly customisable, high-volume health screening and diagnostics tests. Although MGRCs core business has traditionally been the provision of genomics analysis services, MGRCs extensive experience in medical-related analysis projects led to the companys decision to venture into the healthcare industry and provide more and better solutions compared to the general offerings of other bioinformatics services companies.
With the setting up of a genome sequencing laboratory following its listing on the ACE Market of Bursa Securities in 2010, MGRC had been able to develop a range of consumer-related products and services. Aptly called Genetic Screening Services (GSS), these new offerings were officially launched in June 2011 to offer consumers molecular screening tests to enable them to ascertain their predisposition to genetically-inherited diseases. While growing the business organically may be a less expensive strategy, such a strategy could also impede its timely penetration into the market and preclude it from positioning itself as the pioneer and trusted provider of comprehensive molecular screening and diagnostics services in the country. Thus the Board is of the view that the Proposed Acquisitions will accelerate MGRCs growth within the space. During the initial phase of the GSS, the acquisition of CM will significantly provide MGRC with the immediate access to:
(a) an extensive network of distribution channels in order to reach medical professionals and the public as the end customers,
(b) sales and marketing experience within the Malaysian healthcare services sector, and
(c) operational expertise in medical laboratory services, especially in managing the logistic needs of transporting and handling biological samples on a massive scale.
The following section discusses how the Proposed Acquisitions are expected to yield synergies through the exchange of expertise, knowledge and resources that will increase efficiency and competitiveness of the enlarged group in the long term. These factors are expected to propel MGRC to a new level of growth, thus enhancing its long term business prospects and overall profitability in the future.
2.10.1 Overview and Outlook of the Malaysian Economy
As at the end of the first quarter of 2012, Malaysias GDP growth remained resilient at 4.7% led by the favourable performance of the services and manufacturing sectors, and supported by robust construction activity. The expansion in the services sub-sectors especially communication, wholesale and retail trade, and real estate and business services supported growth of the services sector at 5%.
Driven by private sector activities, domestic demand recorded a strong growth of 9.6%. Private consumption remained strong, increasing by 7.4% from the previous quarter. Steady income from favourable employment conditions and stable commodity prices were recognised as the main factors that contributed to higher consumer spending.
Gross Fixed Capital Formation recorded a double-digit growth of 16.1%, supported by private sector investment activity and public sector capital spending. Private investment grew strongly by 19.8% supported by strong investment activity in the manufacturing and construction sectors. Meanwhile, public capital spending increased markedly to record a double-digit growth of 10.3%, on account of large investment from non-financial public enterprises (NFPEs) and Federal Government, particularly in oil and gas, and transportation sectors. In addition, major investment indicators such as bank lending to businesses and imports of capital goods recorded a double-digit growth of 21.1% and 21%, respectively. Similarly, business sentiment improved further during the quarter, as mirrored by the MIER Business Conditions Index (BCI) which rose above the 100-point threshold level to 116.5 points.
The services sector expanded further by 5%, which had accounted for 54% of GDP. Growth was led by the final services group, which increased 5.7% supported by the robust performance of the wholesale and retail trade sub-sector. Meanwhile, the intermediate services group grew 5.1%, boosted by the communication and real estate, as well as business services sub-sectors.
The labour market improved further with total employment having increased by 1.7% to 12.4 million, reflecting the rise of the local labour force by 1.7% to12.8 million.
On the currency front, the Malaysian Ringgit continued to advance against the US Dollar in the first quarter of 2012, with investor risk appetite lifted by the encouraging economic data in the US and positive developments in the European debt situation. The Ringgit appreciated against major currencies except for the Pound Sterling (-0.1%), gaining 9.6% against the Yen, 3.6% against the US dollar and 0.4% against the Euro. The ringgit also rose against most regional currencies, particularly against the Indonesian Rupiah (3.9%) and the Chinese Renminbi (3.4%).
Towards the end of the second quarter of the year, the ringgit was still being traded higher against the US dollar, spurred by renewed buying interest for Asian currencies. Sentiments were boosted by Greece's election results that suggested that the country would remain in the Euro zone for now, which has prompted investors to pick up higher-risk currencies.
(Source: Malaysian Economy, 1st Quarter 2012, Ministry of Finance; BERNAMA, 18 June 2012)
For 2012, GDP growth in Malaysia is expected to be largely domestically driven, due to heightened uncertainties in the global economy. While the outlook is affected by the increasingly adverse external environment, strong economic fundamentals coupled with pragmatic macroeconomic policies and implementation of the Economic Transformation Programme (ETP) will enhance domestic sources of growth. Domestic demand, particularly private sector expenditure, is expected to play a more significant role in driving the countrys economic expansion in 2012.
Following the performance of the first quarter, the Malaysian economy is expected to sustain its growth momentum until end-of third quarter of 2012. This is reflected by the Leading Index, which grew by an average of 1.4% from October 2011 to March 2012. On the demand side, growth is expected to emanate from private consumption and high investment activities. On the supply side, growth will be supported by continued expansion in the services and manufacturing sectors.
(Source: Economic Report 2011/2012; Malaysian Economy, 1st Quarter 2012, Ministry of Finance)
2.10.2 Overview and Outlook of the Healthcare and Pathology Sector
Under the government's 9th Malaysia Plan 20062010, the country moved towards the consolidation of healthcare providers to offer better healthcare services. This catalysed a a shift from the traditional focus on illness, healthcare providers and healthcare facilities, to consumer empowerment, health promotion, lifelong wellness, and the control and prevention of disease.
Malaysia has built a strong healthcare infrastructure, which has improved overall indicators and provided substantive treatment opportunities for the population. A comprehensive network of high-quality health clinics and hospitals covers the country. Malaysias healthcare profile has largely completed a transition from communicable disease to chronic disease.
Within its private healthcare landscape, there has recently been positive growth with new tertiary medical facilities such as the Columbia Asia taking root in the country, and existing hospital chains undertaking significant expansion plans. The promotion of Malaysia as a medical tourism destination under the ETP is undeniably helping to boost the sector. Malaysia now receives 85 90% of its patients from ASEAN countries and the rest from Japan, Australia, the United Kingdom, Middle East and European countries. It is expected that health tourism would generate revenue of RM 590.0 million by 2012, growing at a CAGR of 20% during 2009-2012. The countrys stable political climate, comparable quality of medical services at private medical centres and price advantage over other regional players has put Malaysia in a good competitive position to stamp its mark in the industry.
Globally, healthcare costs have been escalating across the board, driven by two main factors; firstly, the high cost of medical solutions as a result of the high cost of medical research & development and, the rising demand from better-informed patients for these costly medical solutions.
In 2009, the Malaysian National Health Accounts showed that the country had steadily increased its healthcare spending to around RM35 billion per year. In 2008, private sector outpaced public sector healthcare spending: RM18.8 billion vs. RM16 .2 billion, or 53.8% vs. 46.2%, respectively. Malaysian private household out-of-pocket (OOP) spending forms the largest component of the private health care expenditure. OOP spending took up 57.09% (RM10.8 billion) of the total; with some form of private prepaid plans (e.g. insurance) contributing 11.9 to 15.7% over the years from 1999 to 2008. In a 2009 poll, it was found that Malaysian families generally spend 10-20% of their income on healthcare.
CLSA Asia Pacific Markets recently published in its analyst report that it expects that life science technologies, particularly those targeted for diagnostics and medical supplies, would grow faster than country GDP growth due to relatively higher GDP per capita than some other Asian countries (US$9.474 in Malaysia vs US$5.251 in Thailand) as higher levels of discretionary spending can drive incremental demand.
(Source: Healthcare and Pharma: Report (Malaysia), IHS Global Insight; Better healthcare for all, The Star, 3 December 201; Economist Intelligence Unit; Market Watch 2011 The Healthcare Sector, Malaysian-German Chamber of Commerce & Industry; Berita MMA, March 2010; US Life Science Tech: Sector outlook (Malaysia), CLSA Asia Pacific Markets, CrиditAgricole Securities)
The demand for healthcare is expected to expand during the years from 2011 to 2015. By 2015, healthcare spending is forecasted to rise to RM62 billion from the estimated RM36 billion in 2010.
Trends show that with increasing wealth, people tend to spend more on healthcare, demanding higher quality and utilising more services. The system also faces a challenge with the changing demography and lifestyles. Malaysia is recording increasing incidences of lifestyle-related diseases and by 2020, will have reached the status of an ageing nation, with 10% of the total population being above the age of 60.
These challenges however, provide promising opportunities for the pathology and inherited disease screening business being pursued by the enlarged MGRC Group through the Proposed Acquisitions. Under the Country Health Plan of the 10th Malaysia Plan (10MP), it has been recognised that lifestyle changes and an ageing population require the strengthening of secondary medical services and the expansion of nine specialties which include, among others, clinical pathology. Further to this, one of the key 10MP strategies is to empower the community to plan or implement individual wellness programme, thus being responsible for their own health.
In addition to the 10MP, the ETP is playing a crucial role in driving the advancements in the healthcare sector. With the aim to achieve economic, infrastructure and patient impact, 13 Entry Point Projects (EPPs) have been identified under the Healthcare National Key Economic Areas (NKEAs) as to-date. The government aims to generate RM35.3 billion incremental GNI from these healthcare EPPs and business opportunities by the year 2020.
Under the infrastructure impact thrust, the ETP had included diagnostics centres and private pathology labs as part of its longer term bets. Following the expectation that there will be increased demand for preventative care, including early diagnosis of diseases, as Malaysias population grows, the following EPP has been identified for the Healthcare NKEA:
EPP 5: Creating a diagnostic services nexus (DSN) to achieve scale in telemedicine for eventual international outsourcing
The DSN is aimed to create efficiency within the existing domestic diagnostic services, namely radiology and pathology, through public-private partnerships. It is anticipated that a partnership between the Ministry of Health (MOH) and private pathology providers would allow the outsourcing of public pathology laboratory services. Pathology services will be consolidated and outsourced, and will include all basic and some specialised tests. The DSN will be implemented in four phases starting with pilot projects in selected hospitals, followed by a two-phase nationwide expansion, and finally exporting the tele-radiology and pathology services globally. Via the DSN, hospitals will be able to outsource their excess workload via an integrated network which will guarantee faster turnaround but at the same cost.
To facilitate international export of the diagnostic services in the later phases of the EPP, the Ministry of International Trade and Investment (MITI) will be tasked to negotiate free trade agreements to allow for cross-border export of medical services, specifically radiology and pathology starting from 2013.
The resulting impact of this effort would be incremental GNI of RM356 million and the creation of approximately 300 jobs. The MOH would benefit from achieving consistent quality of diagnostic services and quicker turnarounds of radiology and pathology reports, with the potential for earlier detection of diseases and medical conditions.
(Source: Economic Transformation Programme: A Roadmap for Malaysia, PEMANDU)
Barring unforeseen circumstances, the Board believes that the outlook and prospects of the healthcare and pathology industry in Malaysia are expected to be positive. Premised on the above, there exist ample opportunities for business sustainability for the enlarged MGRC Group.
2.11 Post-Acquisition Prospects of the Enlarged MGRC Group
Traditional pathology and molecular screening and diagnostics are two services with overlapping characteristics. These include overlaps in the industry within which they operate (i.e. healthcare), the service category in which they operate (i.e. medical laboratory services and analysis of biological samples), common distribution channels, common target customers, common process flows and common ISO certification (i.e. ISO 15189:2007). As such, the businesses of CM and MGRC are complementary in nature.
The acquisition of CM will enable such strong synergies to combine forces in developing one exceptionally effective industry player. Given CMs stronger presence in the healthcare industry, it would serve as the right platform for MGRC to expedite the deployment of its GSS through the readily available network of distribution channels.
The highly specialised ability to interpret and analyse genetic and other molecular data accumulated over the years at MGRC will lend to the advancement of services currently offered by CM. Besides being much faster than culture-based diagnostic approaches, molecular screening and diagnostics provide advantages beyond the abilities of traditional pathology, such as detecting fastidious or uncultivable agents, low concentrations of pathogens, and antibiotic and antiviral drug resistance in patients biological samples. These are amongst the many important capabilities on which to leverage CMs position as the more advanced medical laboratory service provider in the country. CM can now tap into these advanced services and know-how within Malaysia itself at MGRC, giving it an advantage over competitors needing to work with foreign partners at a higher cost and longer turnaround time.
With the growing role of technology and the increasing level of awareness of healthcare and wellness amongst the public, the Board anticipates the volume of transactions via the enlarged MGRC Groups medical laboratory services, through MPath, to increase accordingly. Synergies between the various entities will enable the MGRC Group to capture tomorrows market, today.
2.12 Risk factors
2.12.1 General Business Risks
Like all businesses, Clinipath is not insulated from general business risks inherent in the industry in which it operates. These include a downturn in the economy, entry of new players, constraints in skilled labour supply, increase in labour costs, changes in law and tax legislation affecting the healthcare industry and adverse changes to general business and credit conditions.
Although the MGRC Group will seek to mitigate these risks through, inter alia, prudent management policies, active research and development, securing and maintaining good business relationships with its customers and suppliers, and effective human resource management, no assurance can be given that any or all of the above risk factors will not have material adverse effects on its business performance or prospects, as well as its financial position.
2.12.2 Competition
The pathology sector in Malaysia consists of only a few players. Some of these companies serve the whole healthcare industry, including providing direct-to-consumer services, while the rest exclusively serve hospitals and medical practitioners within their own group of companies. Despite the inherent rivalry risk, the Board is confident that the MGRC Group will be able to maintain its competitive advantage by focusing on providing innovative and high value-added services, continuous product development and improvement, prompt and efficient delivery of services and effective cost controls. Additionally, the integrated nature of the Groups medical/clinical laboratory services, combining the delivery of traditional pathology, molecular screening and diagnostics, currently affords the Group a competitive edge over its competitors. Despite the above measures being taken, no assurance can be given that the MGRC Group will be able to maintain and/or expand their market share in the future.
2.12.3 Acquisition Risks
The MGRC Group could encounter difficulties arising from the Proposed Acquisitions, including unanticipated integration problems and business disruption which may result in unforeseen operating difficulties and expenditures.
Moreover, the expected benefits of the Proposed Acquisitions may not be realised, to such extent that the MGRC Group may be required to write-off certain associated acquisition costs such as goodwill and other intangible assets, which could be significant.
2.12.4 Financing Risks
It is the intention of MGRC that the Proposed Acquisitions will be financed partly by bank borrowings. Therefore, the MGRC Group may be subjected to the risk of fluctuation of interest rates as well as the risk of having to generate sufficient funds to meet its financial repayment commitments on time. To mitigate against such risks, the MGRC Group will continue to monitor closely the interest rate movements and adopt cost-effective financing packages as it deems appropriate.
2.13 Financial Effects
2.13.1 Share Capital and Shareholdings of Major Shareholders
The Proposed Acquisitions will not have any effect on the share capital and shareholdings of major shareholders in the Company as the purchase consideration for the Proposed Acquisitions will be satisfied entirely in cash from internal funds and/or bank borrowings or a combination of internal funds and/or bank borrowings, the breakdown of which has not been determined at this juncture.
2.13.2 Earnings
The earnings to be derived upon completion of the Proposed Acquisitions is not expected to have a material effect on the earnings of the MGRC Group for the financial year ending 30 June 2012. Barring unforeseen circumstances, the Board expects the Proposed Acquisitions to contribute positively to the future earnings of the MGRC Group.
2.13.3 Net Assets
The Proposed Acquisitions are expected to improve the net assets of the MGRC Group. In the longer term, the MGRC Groups net assets are expected to improve in line with the expected positive contribution from the Proposed Acquisitions.
2.13.4 Gearing
The Proposed Acquisitions will have no impact on the gearing ratio of the MGRC Groups results of financial year ending 30 June 2012. Gearing will increase to the extent that any of the obligations are financed via debt in the upcoming financial years.
2.14 Percentage Ratio
The highest percentage ratio applicable to the Proposed Acquisitions is 23.87%, pursuant to Rule 10.02 Part A(g)(iii) and Rule 10.02 Part B of the AMLR of the Bursa Securities based on the latest audited financial statements of MGRC for financial year ended 30 June 2011, of CM for financial year ended 31 October 2010, of CC financial year ended 31 October 2010, and of MS for financial year ended 31 March 2011.
2.15 Approvals Required
The Proposed Acquisitions may require the approvals of relevant authorities as set out in the Shares SPA, but is not subject to approval by the shareholders of MGRC or conditional upon any other proposals. The Proposed Acquisitions are inter-conditional.
2.16 Directors' and Major Shareholder' Interest
Insofar as the Directors of MGRC are aware, none of the Directors and major shareholders of MGRC and/or person(s) connected with a Director or major shareholders of MGRC has any interest, direct or indirect, in the Proposed Acquisitions.
2.17 Directors' Statement
The Board after having considered all aspects of the Proposed Acquisitions (including but not limited to the rationale and financial effects) is of the opinion that the terms of the Proposed Acquisitions are fair, reasonable and on normal commercial terms and are not detrimental to the interest of the minority shareholders. The Board is also of the opinion that the Proposed Acquisitions is in the best interests of MGRC.
2.18 Depature from the AMLR of the Bursa Securities
To the best knowledge and belief of the Board, the Proposed Acquisitions have not departed from the requirements of the AMLR of the Bursa Securities.
2.19 Advisor and Sponsor
Kenanga Investment Bank Berhad (KIBB) is not the Adviser for the Proposed Acquisitions and therefore does not express any views on the terms and conditions of the Proposed Acquisitions. However, as the Sponsor of MGRC, the Company has sought the advice of KIBB on the procedures which the Company is required to observe for the Proposed Acquisitions pursuant to the AMLR of the Bursa Securities.
2.20 Documents for Inspection
The Shares SPA and, as and when the same shall be entered into, the Property SPA will, be available for inspection at the registered office of MGRC at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, 50490 Kuala Lumpur, from Mondays to Fridays (except for public holidays) during the hours from 9 a.m. to 5 p.m. for a period of three (3) months from the date of this announcement (in the case of the Shares SPA), or a period of three (3) months from the date on which the same shall be entered into, in the case of the Property SPA.
This announcement is dated 20 July 2012. |