THE PUBLIC Investment Corporation’s (PIC’s) opposition to the takeover bid for Adcock Ingram by Chile’s CFR Pharmaceuticals will pay off even though the drug maker is unprofitable at present, according to the manager of state pension funds.
Chile’s biggest drug maker dropped a R12.8 billion offer to buy South Africa’s biggest maker of hospital products on February 7, ending a 10-month fight for its control. It was thwarted after Bidvest built up a 34.5 percent stake, enabling it to block CFR’s bid. The offer was also opposed by the PIC, Adcock’s second-biggest shareholder with 25.5 percent.
PIC chief investment officer Daniel Matjila said last week: “We had been told: ‘Give us your assets and in exchange we will give you paper in CFR listed on the Chile stock exchange. We’d like to use it, create wealth for ourselves, send it to Chile and then we will probably make you participate when we declare a dividend.’ We were unhappy with that.”
CFR has since become an acquisition target itself. In May Abbott Laboratories, the maker of heart stents and nutritional beverages, said it would buy the holding firm that indirectly owns 73 percent of CFR.
Matjila also believed there was “a bit of misrepresentation from management in Adcock”, at the “height of the deal” as to what the company’s earnings outlook was.
Bidvest chief executive Brian Joffe became Adcock’s chairman in February and Kevin Wakeford, also from Bidvest, took over from Jonathan Louw as chief executive in April.
“I don’t think that the market was fully updated,” Joffe said after Bidvest reported earnings yesterday.
“I don’t think that the people buying or selling shares had the proper information in order to make a decision. So from that point of view, of course I am disappointed.”
Adcock said last week that its headline loss a share was R1.80 in the nine months to June, compared with a profit of R2.72 a year earlier. Wakeford said he was “not expecting any quick fixes” and that changes the new management were making needed a “bit of time to gain traction in the market”.
Joffe said: “I think there have been some strategic errors made on where its got to and some of that needs to get unwound and it may take some time. The medium-term prospects for Adcock are there.
“The only question is to what extent will Bidvest participate in it,” he added, referring to questions about whether Bidvest would raise its stake in Adcock and take majority control.
Not long before the talks with CFR were announced, Adcock completed a revamp of its plants, prompting Louw to say the “bride is now dressed and ready for the wedding”, according to Matjila. “That’s an expensive wedding dress,” Matjila said of the upgrades.
Louw declined to comment.
CFR’s final cash and stock offer valued Adcock at between R74.50 and R75.78 a share.
The PIC had calculated the market value at about R82 and had also wanted to be a partner with CFR, Matjila said.
Adcock, which has dropped 25 percent since Bidvest built its blocking stake, fell 0.45 percent to R51.37 on the JSE yesterday, valuing it at R9 billion. – Bloomberg