It’s a crucial week for Adcock - Joffe

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BR Adcock  3963

Johannesburg - Bidvest chief executive Brian Joffe said what happened next at Adcock Ingram would depend on whether its directors invited Bidvest to join the board; and on the competition authorities’ response to the acquisition of a 34.5 percent stake in Adcock by a consortium of Bidvest and Community Investment Holdings, which has interests in the health-care sector.

“We will be better placed to decide which way we’ll go next week,” Joffe said on Friday after the Adcock annual general meeting (AGM). He said he was not shocked by the trading statement released at the AGM, which revealed that earnings a share for the six months to March would be down by at least 20 percent.

“We don’t know what’s included in the figures, they may include costs relating to the transaction. We bought the business for its potential, not for what it is.”

Despite the worse-than-expected details from the trading update, the closing of the Bidvest offer and the now inevitable failure of the CFR bid, the Adcock share price held up reasonably well on Friday. It closed R2.33 lower at R67.66, suggesting that investors are expecting Bidvest to increase its stake in the company. However, the takeover regulations will restrict Bidvest’s ability to increase its stake above 35 percent in the near future.

Analysts have said that in the absence of an offer for Adcock or of a Bidvest-backed plan to boost the company’s performance, the Adcock share should be trading at around R55. There was disagreement as to whether Bidvest would attempt to intervene at Adcock in the near future or wait in expectation of the share pricing dropping.

“Bidvest has overpaid for its 34.5 percent block and might want to play a waiting game, as it did with Mvelaserve,” said one analyst. However, a second said Bidvest needed to move quickly: “Adcock seems to be in a downward spiral and rapid intervention is needed.”

Analysts, who were looking for an increase in earnings of around 9 percent, attributed the worse-than-expected performance to a number of factors, including the slump in the rand, weak economic conditions and that management took its eye off the ball as it focused on the deal with CFR.

Ahead of last year’s AGM, analyst Chris Logan was told by Adcock management that for every 10 percent decline in the rand, Adcock’s direct costs increased by R80 million and indirect costs increased by an additional R50m to R80m. The company’s highest currency exposure is to the dollar, then the euro and Swedish krona.

Logan said at the weekend that Joffe was a brilliant entrepreneur and businessman but, given its difficulties, “Adcock might be a bridge too far”.

At the meeting, chairman Khotso Mokhele acknowledged that the independent board “cannot envisage a realistic basis on which the scheme [relating to the proposed transaction with CFR] will be approved”.

However, unless the terms of the agreement between Chilean pharmaceutical firm CFR and Adcock are altered they will have to proceed with the proposed shareholder meeting, to be held sometime this month. A R50m “break fee” is at risk for either party that does not adhere to the terms of agreement.

Although uncertainty surrounds Adcock’s future, the support for the CFR transaction has notched up its first casualty. Andrew Thompson, who headed the independent board that drove the transaction, failed to be re-elected as a director. About 56 percent of the shares represented voted against him. - Business Report


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