S African drug maker Adcock Ingram approves Chile’s CFR $1.3-bn bid

South African drugmaker Adcock Ingram yesterday 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.

CFR's CEO, Alejandro Weinstein, said, ''We have committed to growing Adcock's business and plan to transfer a number products to Adcock's South African and Indian factories, which would help drive job creation and exports.''

CFR agreed to move some of its production to Adcock's underutilised facilities, and would also export some of Adcock's products to Latin America, and invest between $20 to $30 million in machinery and research and development in Adcock's businesses in South Africa and India.

In July, Santiago-based CFR, 73-per cent controlled by the family of Alejandro Weinstein, offered to buy Adcock for 73.51 rand per share in cash and shares, or $1.3 billion (12.9 billion rand) a 14-per cent premium to Adcock Ingram's 3 July closing price of 64.50 rand. (See: S Africa's Adcock Ingram receives $1.3-bn bid from Chile's CFR Pharma)

Adcock rejected the bid and its largest shareholder, the  the South African government-employee pension-fund Public Investment Corp, said it would prefer a local company buying Adcock Ingram.

Adcock later entered into exclusive talks with CFR after private-equity firm Actis and an unidentified party failed to match CFR's offer.

''The independent board has received further unsolicited proposals,'' Adcock had said in a statement and added that the bids are not better than CFR's offer.

A minimum of 51 per cent and maximum of 64.3 per cent of the proposed offer price would be settled in cash and a minimum of 35.7 per cent and maximum of 49 per cent in new CFR shares.

CFR, Chile's largest drugmaker, made a non-binding cash and stock offer pitched at 73.51 rand a share, valuing the Johannesburg-based company at $1.3 billion. (See: S Africa's Adcock Ingram receives $1.3-bn bid from Chile's CFR Pharma)

PIC had said that it would prefer a local company buying the company and would consider any bid if the cash component is for 50 per cent plus-one-share.

Oasis Group, which holds 2.3-per cent stake in Adcock Ingram, said that it would not back CFR's bid since it is not interested in being loaded with the Chilean company's shares.

Adcock Ingram's Independent Board yesterday said that it is of the view that the CFR proposal is the most favourable proposal received to date and it intends to recommend that its shareholders vote in favour of the proposed transaction.

CFR plans to seek a secondary listing on the JSE in a first of its kind transaction in South Africa.

Commenting on yesterday's announcement, Dr Khotso Mokhele, chairman of Adcock Ingram, said, ''The CFR proposal remains the most favourable received to date and is evidence of our commitment to maximise value for our shareholders. It is superior in terms of proposed offer price, conditionality, strategic rationale, future value creation potential and execution risk. Importantly, it will ensure that South Africa remains core to the merged company thus delivering value not only to our shareholders, but also to our employees and South Africa at large.''

Post completion, Adcock Ingram said that it would be a central part of the combined business, generating approximately 40 per cent of group revenues.

Synergies stand to be unlocked through complementary product portfolios, business structures, geographical presence and manufacturing footprints. The consolidated manufacturing footprints will drive efficiencies and cost reductions, while also generating further investment into Adcock's factories.

CFR has signed a non-binding memorandum of understanding with Baxter, the multinational partner for Adcock Ingram's hospital products division, to secure existing licensing, distribution and supply arrangements.

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.

After the unbundling from Tiger Brands, Adcock Ingram re-listed on the JSE in 2008.

The company has a market cap of about 9 billion rand and holds a 10-per cent share of the private pharmaceutical industry in South Africa.

Adcock Ingram operates in two areas, pharmaceutical and hospital products business.

It has an extensive range of branded and generic prescription and OTC products in a broad range of therapeutic classes such as, analgesics, allergy, cardiovascular, central nervous system, dermatology, ear/nose/eye preparations, feminine health, gastrointestinal, vitamin, mineral and energy supplements as well as a selective range of personal care products.

In generics, the company markets a broad range of affordable products under the corporate brand. In branded products, the company markets leading brands such as Adco Dol, Allergex, Bioplus, Citro-Soda, Corenza C, Myprodol, Panado, Syndol, vita-thion and Unique Formulations, as well as a other brands on behalf of overseas drug companies.

Adcock Ingram Critical Care is South Africa's largest supplier of hospital and critical-care products, blood systems and accessories as well as products used for renal dialysis and transplant medication.

This business unit has a 60-year partnership with US-based Baxter International.

The South African healthcare market benefits from favourable demographic trends, such as government initiatives to combat HIV/Aids, sustained growth in the middle class and increased accessibility to healthcare products.

Adcock Ingram has low-cost manufacturing facilities in South Africa and India, whereby it is able to maintain a cost-efficient manufacturing base and through acquisitions and market development.

In July 2012, Adcock Ingram acquired Goa-based Cosme Farma Laboratories, a pan-Indian pharmaceutical company for Rs480 crore ($86 million).

(also see: South Africa's Adcock Ingram to buy Cosme Farma drug business for Rs480 crore).