RNS Number:4142L
Medical Solutions PLC
22 May 2003

For immediate release:                               07:00, Thursday 22 May 2003


                             Medical Solutions plc

Announces Acquisition of the Welcare Pathology Laboratory from the Welcare
Hospital LLC in Dubai for up to #12m and Subscription of up to #2m in Medical
Solutions shares

Medical Solutions plc ("the Group" or "the Company") today announced that it has
agreed to acquire, subject to shareholder approval, the Welcare Pathology
Laboratory ("Laboratory") from Welcare Hospital LLC ("Welcare" or "Welcare
Hospital") and to provide all of the pathology services for at least the next 20
years to the Welcare Hospital LLC in Dubai ("the Acquisition").

Deal Highlights:


*   Medical Solutions acquires Welcare Pathology Laboratory from Welcare
    Hospital LLC

*   Medical Solutions to provide all pathology services for at least the
    next 20 years to the Welcare Hospital

*   Acquisition also provides the Group with the right to provide pathology
    services to all other hospitals owned or controlled by a Welcare Party

*   Total consideration up to #12m - payable cash and shares over time

*   Also announced today:  Subscription Agreement, conditional on Acquisition, 
    with the Vendors for subscription of #2m worth of Ordinary Shares on 
    completion, being 10 million new Ordinary Shares at Subscription Price of 
    20p per Subscription Share



*   Structure of the Acquisition (with Group being the sole, exclusive referral 
    laboratory for pathology tests from the Welcare Hospital), guarantees a
    minimum of #950,000 of net income for the Group for at least the next three
    years with potential for expansion

Charles Green, Chief Executive Officer of Medical, commenting on the
acquisition, said:

"It is the belief of your Board that having established a presence in the
provision of cancer pathology services to the UK public markets (the NHS), that
this Acquisition will provide the Group with rapid expansion into the private
sector.

"The Acquisition will also enable the Group to establish a significant presence
in the pathology services market in the Middle East and allow the Group to
exploit the growth in the provision of healthcare services in this region. This
announcement follows on from our release earlier this month regarding our first
successful installation of a PathSight telepathology system in the Dubai
Hospital, Dubai's largest public hospital."

                                    - ENDS -

For further information, please contact:

Medical Solutions
Charles Green, Chief Executive Officer                      Mobile: 07736 954724
Andy Longstaffe, Finance Director                           Mobile: 07803 746121

Buchanan Communications                                Tel: +44 (0) 20 7466 5000
Louise Bolton                                               Mobile: 07771 788116


Introduction

Medical Solutions plc ("the Group" or "the Company") today announced that it has
agreed to acquire, subject to, inter alia, shareholder approval, the Welcare
Pathology Laboratory ("Laboratory") from Welcare Hospital LLC ("Welcare" or "
Welcare Hospital") and to provide all of the pathology services for at least the
next 20 years to the Welcare Hospital in Dubai ("the Acquisition"). The
acquisition also provides the Group with the right to provide such pathology
services to all other hospitals owned or controlled by a Welcare Party.

The total consideration will be up to a maximum of #12m comprising, #7m in cash
on completion and up to a maximum of #5m over three years in cash or new Medical
Solutions Ordinary Shares ("Ordinary Shares") at the Company's discretion. The
deferred consideration is subject to the Laboratory generating at least #0.95m
in repatriable earnings in each of the three years following completion. If
those earnings are at least #0.95m in any of those three years, the Company will
pay #1m for that particular year (years) up to a maximum of #3m. If the earnings
are over #0.95m in any of those three years then up to a further #2m in
aggregate will become payable in the proportion of 50p for each #1 of additional
repatriable earnings. If the earnings are less than #0.95m in any of those three
years, no deferred consideration will be payable in respect of that year and the
Company will be paid #2 for every #1 that the relevant years' earnings fall
below #0.95m.

The Company also announces today that it has entered into a Subscription
Agreement, conditional on the Acquisition, with the Vendors of the Laboratory 
("Vendors") for the subscription of #2m worth of Ordinary Shares on completion,
being 10 million new Ordinary Shares at Subscription Price of 20p per
Subscription Share.


Background to the Acquisition

As previously reported, the Group's principal focus over the last 18 months has
been on building a substantial cancer diagnostics and pathology business capable
of servicing its public, private and commercial domestic markets. Due to the
substantial progress made in establishing the Group's services in the UK, the
Directors believe that the Group is now well positioned to exploit the
opportunities that it's offering provides in overseas markets. With the proceeds
from the disposal of its Pharmaceutical Division at the end of 2002 now
available to the Group, the Directors are in a strong position to grow the Group
through suitable complementary acquisitions in the area of cancer diagnostics
and pathology services.

The Group has been providing a small number of pathology services to Welcare,
including cellular and tissue analysis, and as the volume of tests performed for
Welcare has increased, the Directors have recognised a growing need to establish
the Group's own specialist medical diagnostic laboratory in Dubai. The Group's
activities in Dubai are not confined to Welcare. Indeed, the Group announced on
9 May 2003 that it had installed a PathSight telepathology system in the Dubai
Hospital, Dubai's largest public hospital. This installation has been linked to
the Group's cancer diagnostics laboratories in Nottingham providing the Dubai
Hospital with access to real-time tissue examination and software imaging
analysis by PathLore's leading pathologists.

Historically, a high proportion of the Middle East's diagnostic tests have been
sent overseas, primarily to Europe and the USA, for analysis, which inhibited
the development of specialist local diagnostic laboratories. However, the
current geopolitical climate, more specifically the potential for bioterrorism
has reduced the number of potential cancerous tissue samples being accepted
overseas for evaluation, so more analyses is having to be carried out locally.

The Acquisition will enable the Group to establish a significant presence in the
pathology services market in the Middle East and allow the Group to exploit the
growth in the provision of healthcare services in this region. The Dubai
Department of Health and Medical Services and the Dubai Ministry of Health have
recently announced the intention to create Dubai HealthCare City ("DHCC") by
2010. The DHCC is intending to become a world-class cluster of healthcare
professionals and service providers in one location in Dubai. This is expected
to cost over US$1.8bn and will include up to 10 hospitals, both state owned and
privately owned. It is the Group's intention, to seek to supply pathology
services to some or all of these new hospitals.

The structure of the Acquisition, with the Group being the sole, exclusive
referral laboratory for pathology tests from the Welcare Hospital, should
guarantee a minimum level of net income for the Group for at least the next
three years with the ability to expand the range of services offered over the 20
year period of the Services Agreement. In addition, the Services Agreement
provides that any hospitals, which come under the management or ownership of a
Welcare Party over the next 20 years, will be required to use the Group's
pathology services. The Directors are aware that a Welcare Party is currently
tendering for the management of a number of local hospitals, and has most
recently signed a Memorandum of Understanding for the management of a new 100
bed private hospital to be built in the emirate of Sharjah.


Information on the Laboratory

History of the Hospital

The Welcare Hospital in Dubai was set up by Welcare Hospital Ltd (BVI) and is
managed by Welcare Hospital Management Company Ltd (BVI), and opened in May 1998
to provide specialist private medical treatment. It is one of only two large
(more than 100 bed) private hospitals in Dubai. It has 3 operating theatres, a
multi specialist diagnostic pathology lab (the laboratory being acquired) over
20 fully set medical and surgical departments. In the eleven months to 28
February 2003, the Hospital treated 94,500 outpatients and its bed occupancy
rate was 51 per cent. In the financial year to 31 March 2002, the hospital
treated 87,316 outpatients (2001: 71,356 outpatients) and its bed occupancy rate
was 45 per cent. (2001: 30 per cent.).


The Services of the Laboratory

The Laboratory employs 22 staff split between general hematology, medical
microbiology and clinical chemistry. The Laboratory services all of the
pathology requirements of all of the departments of the Hospital, 24-hours a
day, 7 days a week. The total number of investigations carried out by the
Laboratory in the eleven months to 28 February 2003 was 158,792, an increase of
11 per cent. over the prior full year. The principal tests carried out by the
Laboratory in this period, split by revenue, were in the areas of biochemistry
(42 per cent.), hematology (13 per cent.) and microbiology (38 per cent.), with
the balance being in endocrinology, serology and histopathology.

All patients of the Welcare Hospital who require cancer diagnostic and pathology
services are currently referred to the Laboratory for their tests, which are
either performed directly by the Laboratory or, as is the case for
histopathology and cytopathology, outsourced to a third party provider.
Accordingly, the Laboratory manages all such tests and the revenue attributed to
such tests, including those which are outsourced, are attributed to the
Laboratory. These tests have historically accounted for between 15-16 per cent.
of the Welcare Hospital's total revenue. At present, the Welcare Hospital is the
Laboratory's sole customer. The Welcare Hospital's own customer base can be
split broadly into three categories: private individuals (around 50 per cent. by
revenue); insurance companies and corporate entities. Whilst the insurance
companies and corporate entities do not require their insured individuals/
employees to use any particular hospital, it is understood that historically the
premiums paid by insured individuals have been lower if they used Welcare
Hospital rather than their major competitor.


The Services Agreement

The Services Agreement requires each Welcare Party to procure that hospitals
under its ownership or management offer Medical Solutions the opportunity
(through the Laboratory or any other laboratory operated by Medical Solutions)
as their sole supplier of pathology services (save for exceptional circumstances
in which Medical Solutions is unable or unwilling to provide the relevant
services). The Services Agreement contains certain quality standards which the
Laboratory must meet. The Services Agreement is for a minimum period of 20 years
and is terminable thereafter on not less than 1 years written notice. The
Services Agreement provides for an ongoing payment by the Company to Welcare of
an amount up to the equivalent of 35 per cent. of the turnover of the
Laboratory. As part of these arrangements, at no additional cost, Welcare will
provide the Group with all of the Laboratory's administration services,
including accountancy, access to IT and payroll services.

Medical Solutions was granted the necessary licences to trade in Dubai by the
Department of Economic Development, Government of Dubai on 20 May 2003.


Reasons For and Benefits of the Acquisition

The Acquisition will further strengthen and enhance the Group's range of
services offered and widen its geographical areas of operations. The Directors
believe that the Group now has an established presence in the provision of
cancer pathology services to the UK public markets (the NHS) and that the
Acquisition will provide the Group with rapid expansion into the private sector.
The Directors believe that Welcare's existing Laboratory, together with the
potential to provide further services to other hospitals managed by Welcare and
those of the planned DHCC, will add significant critical mass to its existing
operations and open up additional market opportunities.

The Directors anticipate that, as a result of the Acquisition, the Laboratory's
on-going relationship with Welcare should bring strong local connections and
influence in Dubai, and the Gulf region. Medical Solutions is also uniquely
placed in having access to 60 of the top histopathologists in the UK, and the
technology to utilise this resource for the benefit of the Gulf region through
Fairfield's telepathology systems. These factors should be significant in
Medical Solutions securing contracts with the new DHCC hospitals.

The complementary nature of Welcare's pathology requirements to that of Medical
Solutions' existing contracts with NHS trusts in the UK should facilitate its
integration into the Group. The Directors are confident that the services of the
Laboratory can be operated more efficiently and economically as a result of its
integration into a specialist pathology group.

The Directors believe that the attractive taxation environment in Dubai,
together with the relative certainty of earnings of the Laboratory for the first
three years at least, should provide attractive margins and a strong cash flow
for future growth.

Financial Effects of the Acquisition and Subscription and Use of Proceeds

In the 11 months to 28 February 2003, the Laboratory generated revenues of
approximately #2.42m and net profits of approximately #1.47m (all assumed by the
Welcare Hospital). As at 28 February 2003, the Laboratory had net assets of
approximately #0.03m. The effect of the Acquisition will be to reduce the
Group's current cash balance by around #5.5m and adding some #10m of goodwill.
As at 31 December 2002, the Group reported cash of #16.3 million. However, the
Directors anticipate that as a result of the Acquisition, the turnover and
especially profits of the Group will be significantly enhanced, not only in the
short term but also over the longer term.

The Directors intend to use the proceeds of the Subscription to continue to
expand its services offered both organically and through suitable acquisitions.


Terms of the Acquisition

Under the terms of the Acquisition Agreement, which is conditional, inter alia
upon the passing of the Resolutions which will be set out in the Notice of EGM,
the Company will acquire the trade and assets of the Welcare Pathology
Laboratory for a total consideration of up to #12m. The Group will assume the
employment contracts of the Laboratory's 22 employees and will endeavour to
maintain each employees' visa, a mandatory requirement for employment in Dubai.
The Acquisition Agreement contains certain usual warranties and indemnities to
the Company in connection with the Acquisition.


The Subscription

Under the terms of the Subscription Agreement, The Vendor has agreed to
subscribe for the Subscription Shares at the Subscription Price on Completion.
The #2m subscription represents approximately 12.5 per cent. of the Company's
existing issued share capital and will represent approximately 11.1 per cent. of
the Company's enlarged issued share capital following Completion. The
Subscription Price of 20p is the average of the closing mid-market price per
Ordinary Share on the previous 30 days prior to today. The Subscription Price is
at a discount of approximately 13 per cent. to the closing mid-market price per
Ordinary Share on 21 May 2003.

The subscription is conditional, inter alia, upon the passing of the resolutions
to be proposed at an EGM; each of the Acquisition Documents remaining in full
force and effect and becoming wholly unconditional on or prior to Admission; and
admission of the Subscription Shares.


Further information

A circular comprising listing particulars providing further details of the
Acquisition and subscription will be sent to Shareholders in due course together
with notice to convene an EGM to approve the Acquisition before the end of June
2003.

This news release contains forward-looking statements that reflect the Company's
current expectation regarding future events. Forward-looking statements involve
risks and uncertainties. Actual events could differ materially from those
projected herein and depend on a number of factors including the success of the
Company's provision of pathology services.


                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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