Bidvest buyout talk leads to spike in Adcock

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Tiisetso Motsoeneng

SHARES in struggling drug maker Adcock Ingram surged more than 7 percent in intraday trade on Friday on news that shareholder Bidvest Group was looking to raise its stake, a move that could trigger a full buyout.

Bidvest chief executive Brian Joffe has been trying to take control of Adcock since March last year, seeing a chance to turn around another underperforming company and add painkillers and cough syrups to his product stable.

Bidvest, a conglomerate that spans shipping to catering, owns 34.5 percent of Adcock. A document from the Competition Commission last week said Bidvest intended to increase its stake to more than 50 percent.

“Bidvest’s bid has involved two stages. The second stage is to acquire further shares beyond the 34.5 percent, which presumably, depending on the take-up of the offer, would take Bidvest’s holding to above 50 percent,” the document said.

Increasing its stake to 35 percent would force Bidvest to make a buyout offer to Adcock’s minority shareholders, paving the way for Joffe to take a controlling stake.

Shares in Adcock, which are down about a third so far this year, closed 6.1 percent ahead at R52 on the JSE on Friday, off a high of R52.63. Bidvest shares lost 0.28 percent to end at R289.19.

A Bidvest spokesman declined to comment.

Joffe went direct to Adcock shareholders in December last year with a R4 billion cash offer for the 34.5 percent stake, sinking a rival bid from Chile’s CFR Pharmaceuticals.

“If Bidvest gains complete control of the business, it would allow Joffe to make sweeping structural changes,” said Kate Turner-Smith, an analyst at BPI Capital Africa, adding that Bidvest might want to focus more on Adcock’s over-the-counter medicines.

The move would also allow Joffe to take advantage of the recent weakness in Adcock’s share price. The stock is near a five-year low after flagging a nine-month loss this month.

It faces strong regulatory headwinds as more than half of its products depend on regulated price increases, which it frequently says are not enough to cover its rising costs.

Under JSE rules, a bidder must offer remaining shareholders the same price that it paid to raise its stake above the buyout threshold.

Reuben Beelders, a portfolio manager at Gryphon Asset Management, said Adcock was worth at least R60 a share as long as Joffe could deliver a return on equity of about 18 percent.

But he played down the likelihood that Bidvest would offer a hefty premium to Adcock minorities.

Beelders believed Joffe would overcome the problems at Adcock. – Reuters


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