Bidvest wins Adcock as CFR scores own goals

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Johannesburg - So was it the support of the pope or the Public Investment Corporation (PIC) that secured victory for Bidvest in the battle for Adcock Ingram?

The notion that the PIC backed Bidvest’s bid because it was unhappy about a foreign shareholder owning the second-largest local pharmaceutical company is almost as fanciful as believing the pope may have been praying for Bidvest.

Given the pope’s concerns about the state of 21st century capitalism, it is likely he did not see the Bidvest logo on the Sunderland football shirt that day at the Vatican, or perhaps thought Bidvest was the name of the goalie and not the soccer team’s corporate sponsor. But what a coup for Bidvest.

The reality is that the failure of the CFR Pharmaceuticals bid was as much about CFR scoring own goals as it was about Bidvest winning the game.

Back in March last year, after Bidvest had raised the exciting prospect for Adcock shareholders that they did not have to forever contend with sluggish profit performances, the Adcock board moved quickly to find a “white knight” who might keep them from the clutches of Brian Joffe’s Bidvest group.

In July, the white knight emerged in the form of Chilean-based CFR. CFR told an exciting story about synergies with the South American company and the potential for growth across Africa and other emerging markets. For many institutional shareholders this must have seemed as exciting as the SABMiller story – expertise gained in South Africa would be used to grow profits across the globe.

Anyone who had the opportunity to meet with the CFR management could not fail to be encouraged about the prospects for a more exciting global outlook for Adcock.

But as the weeks drifted into months and there was still no sign of a firm offer from CFR, it became apparent that the family-owned Chilean company did not have the wherewithal to conclude a deal. The problems created by its lack of funds were compounded by the fact that little was known about CFR outside its area of operation, which was primarily Chile and Colombia.

Both of these issues created significant challenges for the PIC, which – with around 19 percent – was the largest single shareholder in Adcock. As the manager of the Government Employees Pension Fund the PIC was obliged to focus on more than securing a short-term profit from its investment in Adcock.

Resistance from the PIC was critical given that CFR’s proposal needed the support of 75 percent of the shareholders. Over the next few months CFR faced the daunting challenge of organising funding for the transaction, and persuading the PIC that CFR presented the best prospects for realising the potential that lay within Adcock’s attractive and under-managed assets.

At no stage did the PIC formally endorse the CFR offer. In the few public statements it made, the PIC stressed that it wanted to see value extraction through better management rather than through a change of ownership. A change of ownership, the PIC believed, would see an inordinate amount of the benefits of better management accrue to the new controlling shareholders.

Because the new controlling shareholders were non-South African, this was interpreted as the PIC being hostile to foreign investors. This suspicion lingers despite the PIC stating unequivocally that it supports foreign direct investment (FDI), “as long as such FDI has predictable long-term benefits” for the economy. Recent examples include Barclays and Walmart.

And now, as the CFR offer disappears into the distance, the Adcock share price drifts back towards the levels at which it was trading ahead of the Bidvest offer in March.

In the past 12 months Bidvest has paid R70 a share for almost 30 percent of Adcock and between R55 and R63 for an additional 4.5 percent. This compares with the R59.94 level it has slumped to since the CFR deal was declared dead.

While Joffe has still to reveal what plans he has, shareholders will probably be hoping for a miracle. - Business Report


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