Life without debt
Transaction has major implications for debt and dividends
IT’S EASY TO SEE the value of one good investment when looking at the arrangements struck by empowerment company Brimstone Investment Corporation about its 21,5% stake in soon-to-be-listed private hospital group Life Healthcare. To summarise: Brimstone will unbundle the biggest chunk of its Life stake to shareholders, retain a small strategic shareholding of 2,98% and cash in a sizeable portion of its holding in a pre-listing share buyback exercise. This pretty much covers the options open to Brimstone and should preclude too much carping from shareholders.
While Brimstone’s shareholders will no doubt be delighted to lay their hands on what could be fairly scarce Life scrip, the most intriguing aspect of the deal is the longer term effect the deal will have on the empowerment company. Basically, Brimstone will cash out at least R750m (net of STC) by participating in Life’s pre-listing share buyback. The price Brimstone receives can’t yet be quantified as the buyback is part of a book-building aimed at securing sufficient shareholder spread in Life. The R750m estimation is based on Brimstone’s last stated valuation of Life, which was set at R2,8bn.
But Brimstone’s participation in the buyback/bookbuilding process isn’t a given. The circular to shareholders stresses the book-build price is currently uncertain and asks shareholders to give Brimstone’s directors “the authority