S Africa’s Public Investment Corp stalls Chilean bid for drugmaker Adcock

South African quasi-government investment entity Public Investment Corp (PIC) has held up Chile's CFR Pharmaceuticals' 12.8-billion rand ($1.24 billion) bid for South Africa's second-largest drug company Adcock Ingram Holdings amid heated public exchanges between the PIC and CFR in the last few days.

In September Adcock had said it would recommend CFR Pharmaceuticals' $1.3-billion cash and share offer after its Chilean rival agreed to transfer products and create jobs in order to get government approval (See: S African drug maker Adcock Ingram approves Chile's CFR $1.3-bn bid).

However, in November CFL threatened to withdraw from the bid, unless Adcock's biggest shareholder, the Public Investment Corp (PIC), the South African government-employee pension-fund with an 18.9 per cent stake, supported the deal (See: Chilean drug maker CFR threatens to withdraw $1.3 bn bid for Adcock Ingram).

On Friday, CFR sweetened its July offer of 73.51-rand a share which valued Adcock at 12.6-billion rand, to 74.50 rand a share to win PIC's support for the deal.

However, the revised cash-and-stock offer was dismissed by the PIC chief investment officer Daniel Matjila saying that it was lower than PIC's valuation of Adcock and that PIC preferred an all-cash deal.

The PIC owns 18.9 per cent of Adcock, while South African business conglomerate Bidvest Group Ltd owns about 4 per cent excluding treasury shares.

In response to CFR's original bid, Bidvest joined hands with black investment group Community Investment Holdings (CIH) earlier this month to offer 70 rand per share of Adcock to raise its stake in the drugmaker to up to 34.5 per cent for approximately 4 billion rand.

In March, Bidvest had made a hostile 63-rand a share bid for Adcock, which was rejected by the latter as it highly undervalued the company, and Adcock has since backed the CFR proposal.

Responding to Matjila's critical remarks on the CFR's offer on some local papers, CFR chief executive officer Alejandro Weinstein said on Tuesday's Business Day, "Dr Matjila's comments must be viewed against his on-the-record comments stating his preference for a local buyer, the PIC's support for Bidvest and Actis at a level of R65 and even well below (given the earnings adjustment in the Bidvest offer), and the news articles around a PIC source saying the PIC would accept an all-cash offer at R74."

Further, strongly criticising the PIC stance, CFR said in a separate statement, ''Our engagements with the PIC have been stilted and challenging.''

''We have struggled to gain access to senior executives within the PIC in any meaningful way for reasons that are unclear and despite numerous attempts to do so. None of our engagements with the PIC have concluded satisfactorily and the messages we have received have been mixed and confusing,'' the statement said.

Santiago-based CFR is Chile's largest pharma company engaged in the development, production, and sale of pharmaceuticals in 15 Latin American countries as well as in Vietnam in Asia. Its 2012 revenue was $570 million.

Johannesburg-based Adcock Ingram began as the EJ Adcock Pharmacy in Krugersdorp 120 years ago.  It was listed on the Johannesburg Stock Exchange (JSE) in 1950 before it became a wholly-owned subsidiary of Tiger Brands, and was subsequently delisted in 2000, and later re-listed on the JSE in 2008.

It has two divisions, pharmaceutical and health care, with a market capitalisation of about 9 billion rand. Adcock has a total of five manufacturing sites in South Africa, Ghana and India and have regional sales and distribution offices in Kenya, Ghana and Zimbabwe.

CFR's revised offer represents a 33-per cent premium to Adcock Ingram's unaffected share price and multiples of approximately 13.4x earnings before interest, tax, depreciation and ammortization.

Commenting on the new offer Weinstein said, ''As well as increasing our offer, which will see between 6.4 billion and 8.2 billion rand in cash of inward investment into South Africa, we also confirm our original commitments to creating jobs, enhancing black economic empowerment, developing export markets and listing the combined business on the Johannesburg Stock Exchange.''

The Adcock board has proposed to postpone the shareholders meeting earlier scheduled for 18 December to end of January, to give them time to evaluate the new offer. The company also said that it would oppose Bidvest's legal move to make the proposed CFR transaction invalid.